is jdane right on this one?
is jdane right on this one?
I guess
Problem is you couldn’t calculate the future value properly. This is another crazy one that we can’t seem to agree on. We were given the Market Value, the PV of coupons, the FV of coupons and the par value. So were we supposed to back into the risk free rate by using the values of the coupons and multiply the result by the market value? I think that someone tried that and it didn’t work. The possible answers for my test (5050 if it was an AM question) were: a. MV + FVC b. 11,100,000 or something like that c. MV - PVC
Kwek: tried that, it didn’t work with the Rf. This was further affirmed in my OP where I only state the structure of the answers (and not the actual numbers since I don’t remember them) and none of them include the use of a risk free rate.
From the previous posts, it’s asking for the arbitrage free futures price today: FP=(S0-PVC)*(1+Rf)^t and t=0 So, FP=S0-PVC. But I missed this one at the exam.
this is straight from “Analysis of Derivatives for the CFA Program” Don M. Chance. 2007 Curriculum text book: fo(t)= Bo(T+Y)[1+ro(T)]^T - FV(CI,0,T) in other words, future price equals mkt value bond times risk free minus future value of interest payments. I believe you derived the risk free rate from the current value of coupons and future value of coupons. can algebra show fo(t)= Bo(T+Y)[1+ro(T)]^T - FV(CI,0,T) and fo(t)=[Bo(T+Y)-PV(CI,0,T)][1+ro(T)]^T are equivalent? I don’t think so
I tried some numbers and they are equivalent but no matter which way you sliced the question there was no answer for you finding amongst a), b) or c). I put $1,101,101 or whatever it was out of exasperation.
deriv108 Wrote: ------------------------------------------------------- > From the previous posts, it’s asking for the > arbitrage free futures price today: > > FP=(S0-PVC)*(1+Rf)^t and t=0 > > So, FP=S0-PVC. > > But I missed this one at the exam. this is what i did, but from what jdane and clive are saying, it looks like we are all wrong.
again 10,056 ring a bill to anyone???
again 10,056 ring a bell to anyone???
Yeah, it’s what I got but it looks like it isn’t right: 10,056 is MKT Price - PV of Coupons.
A formula like FP=(S0-PVC)*(1+Rf)^t = (S0-PVC)*FVC/PVC=S0*FVC/PVC-FVC, since FVC/PVC=(1+Rf)^t. But I came up a number large than all three choices. The key is what it’s asking for, which means I didn’t read the Q well. A possible question is: what is the arbitrage free price of the futures (expiring) today, not that of the original futures contract. It makes sense to ask a question like that – futures is market-to-market daily.
this is why we are all screwed for level 3 - they dont give you the answers for you to reverse engineer them.
i got something like 10,118,000 - it was answer B
According to CFA ethical standards, who are the clients of CFAI? Disclosure doesn’t apply to CFAI.
clive1001blue Wrote: ------------------------------------------------------- > believe you derived the risk free rate from the > current value of coupons and future value of > coupons. > > I did that and it didn’t work for any of the answers. Plus since MV-PVCs resulted in the highest answer choice, multiplying this by the rf rate wouldn’t have worked anyway. It was a stupid qn
Agreed. Thinking in other ways, Arbitrage free price of the futures expiring at time T: FP(T)=(S0-PVC)*(1+Rf)^T = (S0-PVC)*(FVC/PVC) Arbitrage free price of the futures expiring today(t=0): FP(0)=S0 What is (S0-PVC)? The funny thing is: C) is still the closet answer. LOL.