# question about Fixed-Income Forward and Futures Contracts

Equation (7)

F0(T)=QF0(T)CF(T)=Future value of underlying adjusted for carry cash flows=FV0,T[S<sub>0</sub>−PVCI<sub>0</sub>,T]=FV0,T[B<sub>0</sub>(T+Y)+AI<sub>0</sub>−PVCI<sub>0</sub>,T]

This equation is shown on page 296 in the book.

F0(T) = FV0,T(S0) – AIT – FVCI0,T

This second equation is shown on page 297 in the book.

Why there is “AIT” deference? Which one is correct?

Thank you.

Accrued Interest is subtracted if the contract is terminated between the coupon payments. For instance, if the coupons are paid on December and June and if the contract gets terminate in the month of March…you need to subtract the three months accrued interest (between December n March) from the future value of spot (As it is not accounted in the FVCI). Think of this way, if the contract gets terminated on any one of the coupon dates, you subtract the FV of that coupon from the FV of spot…here AI at the end can be treated as carry benefit in a way.