The Financial Controller of No Interest Ltd Has Planned That

The financial controller of No interest Ltd has planned that the company borrow using a 90-day bank bill facility with face value of $500 000 in four weeks.Interest rates on 90-day bank bills are currently 12% p.a.As a protection against possible interest rate increases,she has entered into a futures contract by selling one bank bill futures contract at a price of $88.50.After the four-week period,she reverses the futures position at $86.50 and issues a bank bill at a rate of 14% p.a.Calculate the dollar shortfall that Nointerest would have faced had it not entered into the futures contract.

A) $1148
B) $2315
C) $3087
D) $7832

Correct Answer:

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