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Hello Sir,
I’m currently preparing for the September exam and had a question regarding Daikon Co. from the Kaplan kit.
As per your lectures, in interest rate futures, we divide the gain/loss on futures by 400, but I don’t see that Kaplan kit answer has done the same? In another question, they had divided it by 4. Obviously the answer is completely different if this step is performed. Could you please help me understand why in certain question it’s done and in Daikon its not?
Thanks for your time.
I do not have the Kaplan Kit but I do have the examiners answer and I would assume that this is what Kaplan has printed.
There are 68 contracts of $1,000,000. The change in the futures price (if interest rates increase) is 0.06 and so the gain is 68 x $1,000,000 x 0.06 / 400 = $10,200
The question gave the tick value as $25 which is the gain for each contract of $1,000,000 for every 0.01 change in the price. There are 68 contracts and the change is 6 ticks, and so the total gain is 68 x $25 x 6 = $10,200.
Either approach is valid and I do explain about ticks (and the reason the tick value is $25 here) in my lectures.
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