Question

MSc Development Finance MDEF 626: Financial Risk Management SECOND SEMESTER Lecture 3 Tutorial 1. An investor takes the long position on a forward contract on a T-Bill that will expire in 125 days. The forward price at which he takes his position is 2.48% on a discount yield basis. If the underlying on this contract are T-Bills with a par value of $500,000, the amount that the investor would have to pay at contract expiration to take delivery of the T-Bills is closest to: A. $495,694 B. $495,753 C. $487,600

Answer 1

Here, the Par Value = $ 500,000

The discounted yield= 2.48%

The Forward contract price today = $ 500,000 * (1 - 0.0248) = $ 487,600

So, the delivery will be done at a price of $ 487,600.