future is about to expire tomorrow. the day when the contract was initiated it was determined that the no-arbitrate future price was 91.26. right before today’s trading session closed, the last price noted was 89.50 for the future. What is the value to the long today, who initiated this contract 2 and half months ago. Risk free return 2 and half months ago was 7% and today it is 6.5%. a) 1.76 b) -1.76 c) negative 1.7596 or positive 1.7596
since the contract was marked-to-market yesterday - value of the future would be 89.50 - the price it was marked to market yesterday at. 91.26 - 89.50 is the price tomorrow.
cpk, what is the value to the long? spot - future, or future - spot? A or B?
current spot - pv(future)… S1 - F/(1+rf)^(T-t) where you had signed for the future T days ago - and since then t days has elapsed. Current Spot price = S1.
So according to you its B? or A? The correct answer is A. I selected B. and I can’t see why the correct answer is A over B.
If you’re long the contract and it drops in price, isn’t that a loss? What am I missing here?
I guess its really the wording, Determine the value of a long contract VS. Determine the value to a long If its worded determine the value of a long, then correct answer is A. Determine the value to a long - i’d think correct answer is B.
Subtlety…thanks for bringing that up.
wouldnt value to a long be equal to whatever the value is OF a long…moi confoOoOsed
i still don’t get why it’s A. if you long the futures, you have to buy at 91.26 tomorrow. Whilst, if you buy underlying in the market today you only need to pay 89.50 (cheaper). Doesn’t the long lose ? and thus negative ?
Bumping this - I ran into the same EOC question tonight and still don’t get why it would be +1.76. If you went “long” on the futures contract at 91.26 and it was recently priced at 89.50, wouldn’t you have made a bad buy and LOST money? Anyone?
One more BUMP. Anyone? This is a CFAI EOC question so I am amazed no one else is chiming in…