When calculating predicted futures rate, what does 1/3 represent ? Can you show how to derive at 1/3 ?
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Casasophia Co (June2011)
3y ago#1I assume that you mean the calculation of the lock-in rate (even though the examiner wrongly often calls it the predicted rate).
The examiner has calculated the lock-in rate in two ways (either is acceptable). In the first way he has interpolated between the 2 month and 5 month futures prices, and there are 3 months between 2 and 5.
In the second, better way, he has calculated it by looking at the current spot rate and current futures price and adjusting for the unexpired basis.
This is all explained in details, with examples, in my free lectures. Have you watched them?
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