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Corporate Bonds and Value of Futures Position

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The Marcus Corporation plans to issue $5,000,000 of 10-year bonds at par next June, with semiannual interest payments. The company's current cost of debt is 12 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government t-bond futures. See the settlement data below for t-bond futures. (Note: One standard futures contract is $100,000)
a. Calculate the present value of the corporate bonds if rates increase by 3 percentage points
b. Calculate the gain or loss on the corporate bond position
c. Calculate the number of futures contracts required to cover the bond position. Then calculate the current value of the futures position (round up to the next whole number).
d. Calculate the implied interest rate based on the current value of the futures position
e. Interest rates increase as expected, by 3 percentage points. Calculation the present value of the futures position base don the rate calculated above.
f. Calculate the gain or loss on the futures position
g. Calculate the overall net gain or loss.

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Hedging interest rate risk using t-bond futures

The Marcus Corporation plans to issue $10,000,000 of 20-year bonds next June. The company's current cost of debt is 12 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government t-bond futures. The following settle data are available for t-bond futures.
Delivery
Month Settle
(1) (5)
Dec 99-17
Mar 98-01
June 97-12

a. Calculate the current value of the futures position.
b. Calculate the implied interest rate based on the current value of the futures position.
c. Interest rates increase as expected, by 3 percentage points. Calculate the present value of the futures position based on the rate calculated above plus the 3 points.
d. Calculate the gain or loss on the futures position.
e. Calculate the present value of the corporate bonds if rates increase by 3 percentage points.
f. Calculate the gain or loss on the corporate bond position.
g. Calculate the overall net gain or loss.
h. Is the company hedging or speculating? Why? Which is riskier? Why?

Please see attached excel file and calculate in excel if possible.

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