Use the Following Information to Answer Questions 22 Through 24

question 48

Multiple Choice

Use the following information to answer questions 22 through 24.On October 1,the one-month LIBOR rate is 4.50 percent and the two month LIBOR rate is 5.00 percent.The November Fed funds futures is quoted at 94.50.The contract size is $5,000,000.
-Compute the dollar profit or loss from borrowing the present value of $5,000,000 at one month LIBOR and lending the same amount at two month LIBOR while simultaneously selling one November Fed funds futures contract.Assume that rates on November 1 were 7 percent,there is no basis risk,and the position is unwound on November 1.Select the closest answer.

• A)-$3,150
• B)$0
• C)$3,150
• D)$940
• E)-$940

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Definitions:

Relationship

The way in which two or more concepts, objects, or people are connected, or the state of being connected.

Statistically Significant

A measure indicating that the likelihood a result occurred by chance is low, often used in hypothesis testing.

Hypothesis

An initial theory put forward with restricted evidence to guide subsequent research.

Due to Chance

Describes scenarios or results that occur without any deliberate intention or causal relationship, attributed purely to randomness.