# Valuation of Forward Contracts

Ok, so I left derivatives for my last topic to cover, and I am having hard time answering questions correctly. I have been studying off of the Video CDs, and using Qbank as well. I understand the concepts of valueing derivatives, but the CDs say to use 360 days in a year in the calculation, but the questions in Qbank use 365. Has anyone taken these questions from the Mock CFA exams? What is the correct discount days in a year? I don’t wan to know the concept but get screwed on exam day. Thanks, Tom

the cfai text uses 365 days…they will set the questions at the ned of the day

Thanks… I do have one more questions I can’t wrap my head around. If the spot rate is 110, it is a 182 day contract, interest rate is 8%. I figured I could just use the present value calculations on my calculator to get the Forward price. For some reason this is much easier and quicker for me, but the figures are always off. PV = -110 IR = 8/335 N = 182 compute FV = 114.476139 But if I use the formulas I get 114.303. 110 * (1.08)^(182/365) This is enough of a difference to get these probloms wrong. Any thoughts on what I am missing?

for things like this i tend to go with the formular…it makes more intuitive sense to me either way i think cfai will always ask for what is closest to… i think u were cool

imho there’s no point in using a tvm function on that one if u must i’d suggest u use the following combination: I/Y = 8 N= 182/365 pv= -110 and you will arrive at the same result, the reason why you get a different result is because of slightly different interest rate that u use. in theory to be consistent with the formula you should use: I/Y = 1,08 ^(1/365) = 0,0210874 your method gives : 8*(1/365)= 0,021917808

I’d be surprised if the exam answers are so close that the difference between 360 & 365 would matter.