- May 28, 2022 at 6:38 am #656684
Expected futures price on 1 February if interest rates increase by 0.5%
= 100 – (3.8 + 0.5) – 0.22 = 95.48
How they have calculated closing future price as formula goes by
closing future price =100- closing spot-unexpired basis
So unexpired basis = 22*1/3=7.33
Please explain the calculationMay 28, 2022 at 6:44 am #656685
Also can you pls show alternative method for swap calculation as method in exam kit is confusingMay 28, 2022 at 8:02 am #656705
Strictly, the examiner should have not called it ‘the expected futures price’ but should have called it ‘the lock-in rate’.
As far as the unexpired basis is concerned, the question specifically says that it will be 22 basis points on the date of the borrowing (1 Feb).May 28, 2022 at 8:05 am #656706
You can find an answer for the swap in the way that I show it in my lectures (and find more logical) in my reply to a previous post here:May 28, 2022 at 3:02 pm #656729
Not understoodMay 29, 2022 at 7:24 am #656762
Which part do you not understand?
Have you read the reply that I linked to, and have you watched my lectures on swaps?May 29, 2022 at 2:56 pm #656789
yes, i have watched lectures , and saw link but not getting why 22 is used as unexpired basis , it is basis as per question so unexpired basis calculation we should do right?May 29, 2022 at 4:02 pm #656805
The current basis is 44 points. If it is 22 points on 1 February then it has fallen by the difference of 22 points. 22 points has therefore expired which leaves 22 points as being unexpired. (And it will keep falling until by the end of March 44 points will have expired and there will be 0 points unexpired).
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