does anyone else remember them asking for time t=0. i highly doubt the question is simply “wrong”. secondly there could be values for pvc and fvc now (t=non zero) but them asking for the future price at time t=0. i also highly doubt that they ask for the price of a future at expiration, could be wrong though. is there any way we’re not taking into account the conversion factor. i would think they would have to give us some extra information for that to be the case jainan33 Wrote: ------------------------------------------------------- > Market is always spot, that’s the definition of > spot, I think it asked for t =0, in that case FVC > and PVC must be equal, they were not, so question > is wrong
I had the same experience as phils23…no answer for the Clive
Leaving the answer blank is probably the correct choice because there is no correct answer unless they say $900,000 is closet to $1000,000 compared to $800,000 for instance. Since we all went through calculation of treasury bond future price in the practice examination, I don’t think there is any magic way to reach future price without knowing interest rate. S0 x (1+r)^^T will reach par at T Bill (not T bond) maturity date, but this knowledge can not used to compute FV of T Bond on expiration date. Let us all forget this all together. My choice is not better than yours. I think they are also testing our ability to handle the stress, move on to next problem if one doesn’t make any sense.
I think the most logical way to think about this… …is how much you would pay RIGHT NOW to receive the T-Bond at the forward maturity… That means you forgo the PV of coupon between now & maturity… Hence, (Current Mkt Value of T-Bond)-(PV of Coupon)
I have to agree that the question is dead wrong. It could ask the arbitrage free futures price expiring at time T: FP(T)=(S0-PVC)*(1+Rf)^T=(S0-PVC)*FVC/PVC > S0-PVC. Or the arbitrage free futures price expiring at time 0(today): FP(0)=S0 > S0-PVC. [S0, PVC, FVC, Par are provided in the question.] Either way, it ends with a value larger than any one of three choices. Unfortunately, C) is still the closest the answers.
CFAdreams Wrote: ------------------------------------------------------- > i picked a and used the par value… had C as the > answer then thought it was too obvious > :-/ Thats exactly what I did. I ended up picking A and chuckling that the others didn’t see “the trick” I was wrong…the trick was one me! *tears in eyes*
I spent ages on this dam question. I even found a way to work out what (1+r)t was - using the PVC and FVC coupons to determine it. However that didn’t work, so there must be some trick with treasuries. It couldn’t have been the par value, as that would be the maturity value and the qn didn’t say that the future contract ends at maturity. Reckon its fair to say that cfai will have to write this qn off, given that everyone will have gone for diff answers
VinceMTL Wrote: ------------------------------------------------------- > I think the most logical way to think about > this… > > …is how much you would pay RIGHT NOW to receive > the T-Bond at the forward maturity… > > That means you forgo the PV of coupon between now > & maturity… > > Hence, (Current Mkt Value of T-Bond)-(PV of > Coupon) this is exactly what I thought and how I answered…but now, I think the answer is just the par value discounted to “now” because the mkt value at expiration is equal to par value…and the discount factor to “now” could be calculated as FVC/PVC… crap
I actually don’t specifically remember the question, but typically when doing this type of valuation you need to multiply (FV Bond-FVC) by 1/Conversion Factor.
no interest accrued during this period, what does this tell you, i took it as no rfr sh*t, straight MV-PV