7. Consider the following information while answering the following questions. U

Question

7. Consider the following information while answering the following questions. Use discrete returns and round off implied percentage repo rates to 2 decimal places. Only arbitrage between futures contracts and associated assets are to be considered Today's Date -19-Oct-11 Futures Contract Maturity 11/15/2011 12/15/2011 1/15/2012 2/15/2012 3/15/2012 T-bill Contracts Futures NOV DEC JAN FEB MAR Maturity 11/15/2011 12/15/2011 1/15/2012 2/13/2012 2/15/2012 3/14/2012 3/15/2012 4/14/2012 5/15/2012 6/13/2012 Yield 0.420% 0.730% 0.750% 1 , 120% 1 . 1 50% 1.650% 1 .890% 2.020% 2.320% 2.570% 98.67 97.76 96.73 96.67 95.53

Explanation / Answer

Soln : We can calculate the repo rate using the equation, with repo rate = r%,

100 = IMM *(1+r)no. of days/365 We will get the follwoing result for each future contract

Borrowing T - bills Estimating repo rate Arbitrage Future Contracts Maturity Yield DTM (days) Rate Nov 11/15/2011 0.42% 27 19.84% 19.42% Dec 12/15/2011 0.73% 57 15.61% 14.88% Jan 1/15/2012 0.75% 88 14.79% 14.04% Feb 2/15/2012 1.15% 119 10.95% 9.80% Mar 3/15/2012 1.89% 148.00 11.940% 10.05%

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