Mock exam question

  1. Two parties agree to a forward contract to deliver the S&P 500 index at a price of $375,000 in 2 months time.When the forward contract expires, the price of S&P 500 index is $350,000 but the long party is unable to pay the cash settlement. The short part is most likey obligated to A. default on the short contract B. do nothing until the long makes payment C. accept delivery of S&P 500 stocks from the long D. deliver the portfolio of S&P 500 stocks to the long 2. If the coupon rate of a bond is higher than its YTM, the price of a bond forward on the coupon date of this coupon bearing bond will be equal to: A. par value B. spot value C. less than par value D. more than par value

gibroni, please stop posting mock exam questions.


wake2000 Wrote: ------------------------------------------------------- > gibroni, please stop posting mock exam questions. LOL. He DID put mock exam in the title. No need to read if you haven’t done it

Why long has to make the payment? Ain’t the SHORT (the seller) suppose to top up the difference to the LONG?,865219,865221#msg-865221 Good catch… You got me thinking…

Party A was long the S&P contract so when it falls, he loses value, so net cash flow is from the long to the short (Party B).

  1. Given a forward contract cash settlement, only the net payment is required. The long owes the short $25,000. 2. When the coupon rate of a bond is greater than the yield to maturity, the bond trades at a premium. This is accurate for bond forward contracts.