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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › December 2013 2a)
Could you please explain where 2/5 in the unexpired basis calculation (2/5*1.15=0.46) does come from?
Thanks
They are dealing in March contracts, which expire therefore at the end of March.
‘Now’ is 1 November, and so there are 5 months until the contracts expire.
The futures deal will be ended on the date of the transaction which is 1 February. On that date there will be 2 months left until the contracts expire.
We assume that the basis falls linearly over the life of the futures, and so when there are only 2 months left it will have fallen to 2/5 of what it currently is.
(The free lecture on futures may be helpful to you)