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Q4 Sep/Dec Hybrid 2017
I see “unexpired risk” in estimating the futures price in the answer. Can you explain this? I know you explained that we consider only the portion of the period left but why use 2/6 instead of 1/6? Is this the period from the end of Jan to end of the March futures period? i.e Feb 1st to Mar 31st?
Also, where did the 5.0% in investment return come from?
Thanks as always
Yes – the money is being received on 31 Jan and they are using March futures which expire on 31 March. So the unexpired basis is the 2 months from 31 Jan to 31 March.
The central bank rate is currently 4.2%, but could rise by 1.1% which would then be 5.3%.
Wardegul can invest at the central bank rate less 30 basis points, so they will invest at 5.3% – 0.30% = 5%.
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