FRM question; who could explain? Thanks.

CFA General
#1

A 90-day Eurodollar futures contract has a constant Price Value of a Basis Point (PVBP) of $25.00 per million. The 90-day bank bill futures contract on the Sydney Futures Exchange trades on a discount basis and the PVBP is different for each yield level. Assuming nonnegative yields, the PVBP for the bank bill contract will be: a. Always less than the Eurodollar contract b. Always greater than the Eurodollar contract c. Dependent on the market yield

#2

c

#3

a

#4

a ?

#5

answer is a. who could explain why? thanks.

#6

risk vs. reward. given that the date to maturity is the same they both are only affected by the 90 day spot rate. given that the eurodollar future is more risky than an essentially risk free bank bill, the eurodollar should have a higher PVBP. I think…

#7

I think the question is messed up. but here is my take. Given that it trades on discount, we know the value is lower. with lower yields comes lower duration and therefore DV01 as well. that is as far as i got. since the Euro is always less risky, their price will always be higher. hence A

#8

isn’t duration the same in this case - 90 days?

#9

strikershank is right… i believe… bills are safer than eurodollar futures

#10

strikershank Wrote: ------------------------------------------------------- > isn’t duration the same in this case - 90 days? good question. if we treat the future just like a zero bond, then yes duration is the same. However, is it possible to have a constant DV01 for a bond? a constant PVBP suggests to me that the relationship is linear. which it should be since it is a future. this does not jump out to me intuitively to suggests that the PVBP will Always be lower. of course, for equal yields and risk levels, it hink your answer is right. lets see what other suggestions are out there.