No the formula is: FP=[(S0-PV(Coupons))(1+rf)^t]/conversion factor=[S0(1+rf)^t-FV(Coupons)]/conversion factor
But there was no conversation factor given
i chose A… c looked too easy so i had to erase it… -1
MV - PV coupons = forward price. If its anything else, you buy the low side and sell the high side. Its called arbitrage, and its a guaranteed profit.
dlpicket Wrote: ------------------------------------------------------- > MV - PV coupons = forward price. > > If its anything else, you buy the low side and > sell the high side. > > Its called arbitrage, and its a guaranteed profit. It’s actually MV-PV coupon times the risk free rate. Anyhow, this was the worst question and will likely get thrown out. Just the fact that we are discussing this and no one for sure can give an answer it shows you that it is not a good question. For me, I can pretty much price any sort of structure, I did it proffesionally and was quite good at it but this question makes no sense.
I agree with you sebrock, pricing is actually a pretty simple process for most securities all you have to do is understand the CFs and you will know what to do, not really any need to memorize anything.
since no interest accured during the period as metioned in the vigenette, I assumed (1+r)^T does not apply here. so went ahead with MV-PV of coupon. Chamarr Wrote: ------------------------------------------------------- > Isnt the formula either FP=So (1 + Rf)t - PVC > which is equivalent to FP= (So - FVC) (1+Rf)t
The only reasoning I can have now is Rf=0 — so it’s C)MV-PV of Coupons. But FVC > PVC, so Rf is not 0. I spent last 15 minutes on this question, but still no solution.
Like I said I backed out the period specific (period specific because this Rf would only apply to the period over which the FV and PV are computed, meaning this was in no way an annualized Rf or anything) Rf using the PV and FV of coupons given, but that didn’t lead to anything since the answers are described by the formulas in the OP.
Or pehaps t=0 ==> (1+Rf)^0=1, so C) is correct. What is the question? arbitrage free future price of this bond TODAY?
I hope so, MV - PC is what made the most sense to me and what I put so I hope you are all right.
mv - pc was …10,056 = C Right? I don’t want to be anoying but does that number sound right?
There were different exams and my PV was a number I saw here which was also C and 10,110 or something to that effect.
I agree with sebrock C and around 10,110 also here.
I took it in the UK that’s probably it I remember perfectly Taking mv-pvc
Must be bro, I had exam 5151 if that helps.
You either subtract PV from Spot or FV from the entire amount of (s * 1+rft^t). They didn’t give us rfr so I just used spot and subtracted PV. Based on multiplying by rfr, it could only be a higher number, which wasn’t listed at a choice.
set each formula = to eachother and solve for (1+rf)t like it was any other variable. (s-pvc)*(1+rf)t = s(1+rf)t - fvc (10000 - 6000)* x = 10000*x - 70000 x = whatever f = 10000(x) - 70000
Chamarr Wrote: ------------------------------------------------------- > Isnt the formula either FP=So (1 + Rf)t - PVC > which is equivalent to FP= (So - FVC) (1+Rf)t I think you have that mixed up. Switch the P in the first line with the F in the second and I think you are right.
If you read the CFAI and Schweser notes you’ll see that when solving for a TBOND future you must use the FVD, not the PVD. I don’t have my books in front of me, but if someone does you can look it up for yourself. There were numerous discussions on practice problems regarding this as well since solving for a TBOND futures using the PVD would product incorrect numbers.