The December Eurodollar futures contract is quoted as 98.40 and a company plans to borrow $8 million for three months starting in December at LIBOR plus 0.5%.
(a) What rate can then company lock in by using the Eurodollar futures contract?
(b) What position should the company take in the contracts?
(c) If the actual three-month rate turns out to be 1.3%, what is the final settlement price on the futures contracts?
Ignore timing mismatches between the cash flows from the Eurodollar futures contract and interest rate cash flows.

Question

The December Eurodollar futures contract is quoted as 98.40 and a company plans to borrow $8 million for three months starting in December at LIBOR plus 0.5%. 
(a) What rate can then company lock in by using the Eurodollar futures contract?
(b) What position should the company take in the contracts?
(c) If the actual three-month rate turns out to be 1.3%, what is the final settlement price on the futures contracts?
Ignore timing mismatches between the cash flows from the Eurodollar futures contract and interest rate cash flows.