CFA Practice Question

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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
F0(T) = 1263.87
VT(0, T) = 1245 - 1263.87 = -$18.87
This is a loss to the long position.

User Contributed Comments 3

User Comment
ostrich An interesting 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)
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