i am a bit confused with the practice problem 8 of the CFA book.
the question is as follows :
a Manager holding 350M of US Equities with beta of 1.1
The manager would like to Create a synthetic cash position by temporarily converting the US equity exposure in the fund into cash for a period of three months.
below are the market information:
S&P 500 futures Treasury bond futures Quoted futures price 2157 Quoted futures price $105,200 Multiplier $250 Duration 6.20 Beta 0.90 Yield beta 0.95 Maturity of futures 3 months Maturity of futures 3 months Other US market data Risk-free rate 0.50% S&P 500 dividend yield 3.00%
The proposed solution by the CFA book
The number of S&P 500 futures contracts needed to be sold to execute Strategy 2 is calculated as follows.
while i would have thought that
Nf = 350M x (1+RFR)^0.25/Nq
Can somebody tell me where is the mistake in my reasoning? shouldn’t we always look at the FV of the cash that we are synthesizing?