So I am presented with yet another will this work question.
The CFA goes through the whole long hullabaloo on Cash and Carry and reverse Cash and Carry
Without typing everything out, suffice it to say that the answer for number 6 on the 2008 exam is 2.19 cents for the long reverse cash and carry.
The “simple” way would be to say “well we receive the risk free and pay the lease” so…
Profit = Forward - Spot e(Rf-Lease)T
in this case its 316e(.05-.06)3/12 = 315.2199
Future is 3.13
Net we get 2.21…
Do we win? Or does CFAI say it has to be 2.19 and the long way? The difference is .02 cents on a 313 cent contract…
On a multiple choice it woudl be fine…but what about the essay