In Late January 2011, Starlight Corporation Is Considering the Sale

Multiple Choice

In late January 2011, Starlight Corporation is considering the sale of $50 million in 10-year bonds rated AAA. The issue will most likely be registered and sold some time in April. Therefore, Starlight Corporation desires to hedge the pending issue using Treasury bond futures contracts, which each represent $100,000. Explain how you would go about hedging the bond issue?

A) sell 500 contracts
B) buy 500 contracts
C) sell 50 contracts
D) buy 50 contracts
E) buy 5000 contracts