Hi all, I’m not sure how many have done this particular question. I would include it here but it is basically the FRA Forward payoff calculation:
I believe the CFAI book has it incorrect but I’m doubting myself as I’ve been reading material for 5+ hours today.
I found my solution to be 4.48%-4.285% (180/360) / 1 + 4.48% (180/360) = 0.00095
Multiplied by ttl to make -286,091.55 (Book has -293,427). It’s a difference of mine being closer to Answer B, while the book says it’s A.
The book uses 4.68% as the FRA(0,h,m) --No clue where this figure comes from as we literally solved #9 to be 4.285!
Anyone else notice this or do I just need to take a break?
Galli
March 30, 2014, 5:22pm
#2
4.68 is the FRA offered by Steam Partners, not the market rate (one you calculated in #9 )
Finkid
March 30, 2014, 6:30pm
#3
silvermonaco:
I found my solution to be 4.48%-4.285% (180/360) / 1 + 4.48% (180/360) = 0.00095
Multiplied by ttl to make -286,091.55 (Book has -293,427). It’s a difference of mine being closer to Answer B, while the book says it’s A.
The book uses 4.68% as the FRA(0,h,m) --No clue where this figure comes from as we literally solved #9 to be 4.285!
Anyone else notice this or do I just need to take a break?
The rate (4.68%) is offered by steam partners, as already mentioned by Galli, and it’s also stated in the question. 4.285% is the no-arbitrage forward rate at contract initiation.
I also got this question wrong in the first attempt.
The whole calculation is [(4.48%-4.68%)*(180/360)*300,000,000]/{1+[4.48%*(180/360)]} = -293,427