Create a hedge with the futures contract for Zinn Company's planned June debt offering of $10 million. What is the implied yield on the bond underlying the future's contract?
Problem Inputs:
Size of planned debt offering = $10,000,000
Anticipated rate on debt offering = 11%
Maturity of planned debt offering = 20
Number of months until debt offering = 7
Settle price on futures contract (% of par) = 95.53125%
Maturity of bond underlying futures contract = 20
Coupon rate on bond underlying futures contract = 6%
Size of futures contract (dollars) = $100,000