Since he was trying to hedge his existing bond (that is already trading), would it not be FP = MV * (1+r)^t - FVC You were given market prices and future value of the coupons. You then need to adjust the MV by the (1+r)^t…though you weren’t give them…but if had to be bigger so I think it was the highest answer choice.
I thought they gave the forward price of the bond already and you just had to take off the FVC.
TheAliMan Wrote: ------------------------------------------------------- > I did an A on this Sweet, if Ali chose the same answer as me then I’m safe! 
Well if that’s the case I got it wrong…I assumed it was the market price of the Treasury Bond.
Bump out of frustration…was the exhibit market price of the forward??? or market price of the underlying?
10.1 million?
you weren’t given rf or t so you had solve for it by setting (S-pvc)*(1+rf)t = s*(1+rf)t - fvd you can just treat (1+rf)t as a variable x so you have (10000 - 6000) * x = (10000 * x) - 7000 or whatever the values were and solve for x and plug it in
ryan, what did you get?
KCollier Wrote: ------------------------------------------------------- > Since he was trying to hedge his existing bond > (that is already trading), would it not be > > FP = MV * (1+r)^t - FVC > > You were given market prices and future value of > the coupons. You then need to adjust the MV by > the (1+r)^t…though you weren’t give them…but > if had to be bigger so I think it was the highest > answer choice. Exactly, the price of forward wil be current value (which is market coz of arbitrage) increased by rfr as cost of holding less fvc which decrease the cost of holding
TheAliMan Wrote: ------------------------------------------------------- > ryan, what did you get? i didn’t realize how to do it until it was too late. i didn’t finish. ha!
I think Ryan has the right idea on how to do this problem. (S-pvc)*(1+rf)t = s*(1+rf)t - fvd
put you should have been able to find the rfr from simply doing the coupon comparison. I tried that and didn’t get any answers with my RFR that way. I checked out all the answers were simple subtracts of either PV of coupons or FV of coupons from either the market price or par
TheAliMan Wrote: ------------------------------------------------------- > put you should have been able to find the rfr from > simply doing the coupon comparison. I tried that > and didn’t get any answers with my RFR that way. I > checked out all the answers were simple subtracts > of either PV of coupons or FV of coupons from > either the market price or par how do you get the rfr from coupon comparisons when you don’t know t?
The “closest to” in the question might have been key here.
ok, so what was the answer: A B C ?
I went with C, the largest one.
i went with market price - FVC
The problem is that the right way is the S * (1+RFR) - FV(CF) or ( S-PV(CF) ) * (1+RFR). They didnt give you the RFR but if you put the PV of the cashflows in PV and the future in FV and solve for I you get 2.57%. So if you do the S-PV * 1+RFR you are still closer to the 10.1 instead of the higher 10.3.
I also went with MP - FVC which was B I think.
I spent all my last 15 minutes on this question but still no sure answer. I tried this: FP = (S0 -PVC)* (1+r)^t=S0*FVC/PVC - FVC. However, my answer didn’t match any one of the three.
One choice is FP=S0-FVC, another is Par value - FVC or sth – I knew how the numbers are calculated, but just not sure which way is right. My only choice then is: pick B.