- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 6. Pricing and Valuation of Futures Contracts
- Subject 1. Why do Forward and Futures Prices Differ?
CFA Practice Question
Consider a futures contract that has a life of 136 days. The annual interest rate is 4.75%. If the spot price is $98, the futures price would then be ______.
Correct Answer: $99.71
F0(T) = S0(1 + r)T = 98 (1.0475) 136/365 = $99.71
User Contributed Comments 4
| User | Comment |
|---|---|
| msusolar | why 365 and not 360? |
| Sagarsan88 | Why can't we use 4.75*136/365 here? |
| wpaxtonn21 | Shouldn't it be compounded as: 98( 1 + 0.045/365)^136 = 99.75 |
| Fraser1997 | Msusolar you use 365 since the life of the future is 136 days which is taken as a fraction of a full year. so 136/365. You never really use out of 360. You're likely getting mixed up with FRAs which e.g. for a 90-day LIBOR you'd discount etc... using 90/360. Its not literally 90 days out of 360, what it actually is saying is 3 months/ 12 months, because MRRs such as LIBOR actually look at using a monthly basis as opposed to a daily basis in CFA. |