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Postby nivethasridhar3 » Mon Apr 25, 2016 9:31 am

Refer 2 images attached.
IMG_20160425_145802022.jpg (1014.94 KiB) Viewed 2330 times

IMG_20160425_145811602.jpg (916.03 KiB) Viewed 2330 times

In the question, if I solve using a time line,

FRA = (6.5%*(150/360) - (6%)*(60/360)

why is this incorrect? Where am I going wrong.


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Joined: Wed Apr 09, 2014 6:28 am

Re: Derivatives-

Postby edupristine » Sat May 07, 2016 6:02 am

Hi Nivethasridhar
In this Question you have to find out the T-bill future contract which is calculating by following steps (1 - 60/360*.06) = 0.99? Choice A

the price for the 60 day T-Bill.

Bo(60) = 1 - .06(60/360) = .99
Bo(150) = 1 - .065(150/360) = .9729

Fo(60) = Bo(150)/Bo(60) = .9729/.99 = .9827

Similarly, the Futures price can be worked out by finding out the rate we need to compound the 150 day T-Bill at by using the price of the 60 day T-Bill:

1/.99 = 1.0101

Fo(60) = Bo(150)*ro(60) = .97292*1.0101 = .98274
so here you don't have need of calculating FRA.

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