Page 29 - FINAL CFA II SLIDES JUNE 2019 DAY 10
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LOS 39.a: Describe and compare how equity, interest rate,
fixed-income, and currency forward and futures contracts are READING 39: PRICING AND VALUATION OF FORWARD COMMITMENTS
priced and valued.
LOS 39.b: Calculate and interpret the no-arbitrage value of
equity, interest rate, fixed-income, and currency forward and MODULE 39.4: PRICING FORWARD RATE AGREEMENTS
futures contracts.
EX. Calculate the price of a 1 × 4 FRA (a 90-day loan, 30 days from now). Current 30-day LIBOR is 4% and 120-day LIBOR is 5%.
This is the no-arbitrage forward rate—the forward rate that will make
the values of the long and the short positions in the FRA both zero at
the initiation of the contract.
