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Can you explain how the 2/7 is derived for unexpired basis please?
Is the 2 because the future expires in feb so March and April are not covered by the future?
What months does the 7 relate to?
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The question states that ‘now’ point is 01 June. The loan starts on 01 Nov, i.e. in 5 months from ‘now’.
Further, the question introduces ‘Three-months December futures’, with settlement ‘at the end of the month’ (para ‘Initial assumptions’). This means that settlement will happen on 31 December, i.e. in 7 months from ‘now’.
Therefore, on 01 November, there will be just 2 months left til 31 December, hence the fraction is 2 / 7.
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