To calculate the minimum net interest rate cost for Brightstone Ltd, which intends to borrow $5 million for 3 months starting in September, we need to hedge the interest rate risk using options on 3-month Canadian interest rate futures with a strike price of 94.50. The contract size is $1 million, and the relevant option is the September put option with a premium of 0.67%.

Step 1: Determine the number of contracts
The loan amount is $5 million, and each futures contract covers $1 million.
Number of contracts = $5,000,000 / $1,000,000 = 5 contracts.

Step 2: Calculate the cost of the put options
The September put option premium is 0.67% (quoted as an annual rate). For a 3-month contract, the premium per contract is:
Premium per contract = 0.67% × $1,000,000 × 3/12 = $1,675.
For 5 contracts:
Total premium = 5 × $1,675 = $8,375.

Step 3: Determine the interest rate from the futures
The strike price of the put option is 94.50, which implies an interest rate of:
100 – 94.50 = 5.50% per annum.
For 3 months:
Interest rate = 5.50% × 3/12 = 1.375%.

Step 4: Calculate the interest cost on the loan
The loan amount is $5 million. Using the hedged interest rate of 5.50% per annum:
Interest cost = $5,000,000 × 5.50% × 3/12 = $68,750.

Step 5: Calculate the total cost (interest + premium)
Total cost = Interest cost + Option premium
= $68,750 + $8,375 = $77,125.

Step 6: Calculate the effective interest rate
The effective interest rate is based on the total cost relative to the loan amount, annualized:
Effective interest rate = ($77,125 / $5,000,000) × (12/3) = 0.015425 × 4 = 6.17%.