In study session 4 (page 318), the interest rate parity formula is: F/S = (1+Ra)/(1+Rb). On the next page there is an example to calculate a 3 month forward contract when given annualized interest rates, making each interest rate (1 + R/4).
In Derivatives, the formula is F = S x (1+Ra)^T/(1+Rb)^T. (page 27, 49)
Why is it different and which one is right? Does it have to do with annualized rates?作者: ap0258 时间: 2011-7-13 15:56
Yes, when the problem gives you annualized rates, you need to adjust the formula to reflect that. The first formula above is assuming that you are calculating a forward rate in 1 year.
