A Company Has a Short Term Note Payable Outstanding at an Interest

Multiple Choice

A company has a short term note payable outstanding at an interest rate of 3%, and must refinance this liability in 90 days. The company wants to hedge against the possibility that interest rates will be higher at that time. If the interest rate on U.S. Treasury bills is highly correlated with the rate on the notes, which investment is an effective hedge?

A) Purchase call options on U.S. Treasury bills
B) Take a long position in U.S. Treasury bill futures
C) Swap the fixed interest on the note for a floating interest rate obligation tied to the U.S. Treasury bill rate
D) Take a short position in U.S. Treasury bill futures