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Good morning sir
my question is simply: how to recognize in such a question that we need to calculate the lock-in rate rather than doing problem the ‘regular’ way.
let me explain:
the ‘regular’ way is to setup the basis table, calculate the closing futures price, calculate the contracts and then calculate the profit on the futures deal.
from this, we can then calculate the efficiency and the effective rate.
and in this question we do not do that … we just look at the basis and calculate the effective rate.
to put it in another way, can this question be done in the ‘regular’ way?
i might have a follow up after u reply….
regards
It depends whether or not you are told what interest rate to assume at the date the loan starts. If you are told what the interest rate will be, then you can do it the ‘regular’ way. If not, then you have to use the lock-in rate.
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