Reading 71: Forward Markets and Contracts - LOS d, (Part class, contract, price, black, forward

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1.The price of a 90-day forward contract on a 90-day Treasury bill will be:

A)   above the current price of a 90-day T-bill.

B)   either above or below the current price of a 180-day T-bill.

C)   equal to the current price of a 180-day T-bill.

D)   above the current price of a 180-day T-bill.

2.The settlement price of a deliverable forward contract at 6 percent on a $1 million 90-day Treasury bill would be:

A)   $940,000.

B)   $6,000.

C)   $985,000.

D)   determined by the market rates at expiration.

3.The forward contract price of a coupon-bearing bond is typically quoted as:

A)   the bond dollar-price plus accrued interest as of the settlement date.

B)   a discount to the face value.

C)   a yield to maturity at the settlement date.

D)   the coupon rate on a par bond at the settlement date.

4.All of the following are characteristics of bond forward contracts EXCEPT:

A)   contracts must settle before the bond matures.

B)   contracts can be written on bonds with embedded options.

C)   shorts will have gains on the contracts when interest rates rise.

D)   prices are stated as yield to maturity, including accrued interest.

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答案和详解如下：

1.The price of a 90-day forward contract on a 90-day Treasury bill will be:

A)   above the current price of a 90-day T-bill.

B)   either above or below the current price of a 180-day T-bill.

C)   equal to the current price of a 180-day T-bill.

D)   above the current price of a 180-day T-bill.

The correct answer was D)

Since purchasing a 180-day T-bill today will result in a 90-day T-bill 90 days from now, the forward price must be higher than the current price of a 180-day T-bill. As long as interest rates are positive, no one would agree to sell a 180-day bill at a lower price 90 days later.

2.The settlement price of a deliverable forward contract at 6 percent on a $1 million 90-day Treasury bill would be:

A)   $940,000.

B)   $6,000.

C)   $985,000.

D)   determined by the market rates at expiration.

The correct answer was C)

Treasury bills are quoted as a discount from face value, which is annualized based on a 360 day year. (90/360) × 6% = 1.5%, so the contract price of the $1 million bill is [1 - .015] × 1,000,000 = $985,000.

3.The forward contract price of a coupon-bearing bond is typically quoted as:

A)   the bond dollar-price plus accrued interest as of the settlement date.

B)   a discount to the face value.

C)   a yield to maturity at the settlement date.

D)   the coupon rate on a par bond at the settlement date.

The correct answer was C)

The contract price for a coupon-bearing bond is typically quoted as its yield to maturity. The accrued interest is (customarily) added to the price on a deliverable contract, but not included in the stated price quote.

4.All of the following are characteristics of bond forward contracts EXCEPT:

A)   contracts must settle before the bond matures.

B)   contracts can be written on bonds with embedded options.

C)   shorts will have gains on the contracts when interest rates rise.

D)   prices are stated as yield to maturity, including accrued interest.

The correct answer was D)

Bond forward contracts are typically stated as a yield to maturity exclusive of accrued interest. All of the other statements are characteristics of bond forward contracts.