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All main topics / Finance & Investment / Derivatives / Derivatives
The time-to-maturity of a Eurodollars futures contract is 4 years and the time-to-maturity of the rate underlying the futures contract is 4.25 years. The standard deviation of the change in the short term interest rate,  = 0.011. What does the model in the text estimate as the difference between the futures and the forward interest rate?
A.   0.105%
B.   0.103%
C.   0.098%
D.   0.093%
Answer: B

With the notation in the text, the futures rate exceeds the forward rate by 0.52T1T2. In this case =0.011, T1=4 and T2=4.25 so the difference between the forward and futures price is 0.5×0.011×4×4.25=0.00103.

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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015




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