- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 33. Pricing and Valuation of Forward Commitments
- Subject 3. Pricing Equity Forwards and Futures

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**CFA Practice Question**

A portfolio manager took a long position on a 180-day forward contract on the S&P 500 stock index 30 days ago. At the time of the contract initiation:

- The no-arbitrage forward price was $1263.87.
- The index was at $
- The constant continuously compounded dividend yield is 1.45%.
- The constant discrete risk-free rate is 4.6%.

At expiration the index value is still $1245. What is the value of the forward contract at expiration?

A. $0

B. -$18.87

C. -$12.34

**Explanation:**ST = 1245

F

_{0}(T) = 1263.87

V

_{T}(0, T) = 1245 - 1263.87 = -$18.87

This is a loss to the long position.

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**User Contributed Comments**
3

User |
Comment |
---|---|

ostrich |
An interesting question....to say the least!! |

Xocrevilo |
Not hard: V (of long at expiration) = ST - F |

broadex |
Simple: at expiration no dividend discounting nor interest rate discounts. its just FV of index less future value of forward. (not exactly future values at expiration since these are now spot prices) |