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The time-to-maturity of a Eurodollars futures contract is 4 years and the time-to-maturity of the rate underlying the futures contract is 4.25 years. The standard deviation of the change in the short term interest rate, = 0.011. What does the model in the text estimate as the difference between the futures and the forward interest rate?
A. 0.105%
B. 0.103%
C. 0.098%
D. 0.093%
A. 0.105%
B. 0.103%
C. 0.098%
D. 0.093%
Answer: B
With the notation in the text, the futures rate exceeds the forward rate by 0.52T1T2. In this case =0.011, T1=4 and T2=4.25 so the difference between the forward and futures price is 0.5×0.011×4×4.25=0.00103.
With the notation in the text, the futures rate exceeds the forward rate by 0.52T1T2. In this case =0.011, T1=4 and T2=4.25 so the difference between the forward and futures price is 0.5×0.011×4×4.25=0.00103.
Karteninfo:
Autor: CoboCards-User
Oberthema: Finance & Investment
Thema: Derivatives
Veröffentlicht: 27.10.2015