Study Session 16 - Forward Markets & Contracts

Question 0

Forward/futures contract price

Answer 0

S0*(1+Rf)^T

or S0=FP/((1+Rf)^T)

Question 1

No-Arbitrage principle

Answer 1

there should not be a riskless profit to be gained by a combinationof a forward contract position with positions in other assets

no tradaction cost
no restriction on short sale and its proceeds
unlimited borrowing and lending @ risk-free

Question 2

Value of long position in a forward contract at initiation

”””””””” at time t

Answer 2

S0-(FP/((1+Rf)^T)

St-(FP/((1+Rf)^T-t)

Question 3

The no-arbitrage price of an equity forward/futures contract with discrete dividend

same as for bonds

Answer 3

(S0 - present value of dividend)*((1+Rf)^T)

or

(S0*((1+Rf)^T) - Future value of dividend

On the exam, use payment date unless the ex-dividend dates are given

Question 4

Value of the long position in a forward contract on a dividend-paying stock

Answer 4

(S-Present value of dividend) - (FP/ ((1+Rf)^T-t))

Question 5

price of an equity index forward/futures contract

Answer 5

S0e^((cc Rf-cc dividend yield)T)

cc = continuously compounded

Question 6

Value of the forward contract on an equity index

Answer 6

St/(e^cc dividend yieldT-T)-FP/(e^cc RfT-t)

cc= continuously compounded

Question 7

LIBOR quotation

Answer 7

annualized rate based on 360-day year

add-on yield

Question 8

FRA Notation

ex: 2*3 FRA

Answer 8

2*3 FRA is a contract that expires in teo months (60 days), and the underlying loan is settled in three months (90 days). Theunderkying rate is a 1-Month (30 days) LIBOR on a 30-day loan in 60 day

page 22 livre 5

Question 9

price of an FRA

Answer 9

unannualized rate le plus éloigné/unannualized rate le plus proche - 1

qu’on annualise en se rapellant que c’est sur une base de 360 jours par année

Question 10

Value of a FRA

Answer 10

present value of the saving caused by the difference ofthe market rate and the settled rate

Question 11

forward/futures price of a unit of foreign currency

Answer 11

S0* (1+Domestic currency interest rate/1+foreign currency interest rate)^T

Question 12

value of a currency forward contracts

Answer 12

(St/((1+foreign interest rate)^T-t)) - ( Ft/((1+Domestic interest rate)^T-t)

Question 13

Value of a futures contract

Answer 13

current futures price - previous mark-to-market price

Question 14

If the correlation between the underlying asset value and interest rate is

positive
zero
negative

investor will…

Answer 14

go long in a futures contract, futures price will be higher

have no preference

go long in a forward contract, forward proce will be higher

Question 15

net cost of holding the asset

Answer 15

Storage costs - convenience yield

Question 16

the generalized no-arbitrage futures price

Answer 16

S0*((1+Rf)^T) + FV(NC)

Question 17

effect if a positive net costs (NC) on futures price

Answer 17

it increase the futures price

Question 18

Treasury bill (T-Bill) futures contracts quotation

Answer 18

The price quotes are 100 minus the ANNUALIZED discount in percent on the T-Bill

voir exemple p.45 et 46 volume 5

Question 19

Adjusted T–Bonds futures price

Answer 19

[bond price * ((1+RF)^T) - FVC] * 1/Conversion Factor