Level 121 Level 123
Level 122

## Ignore words

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continous compounding future value interest factor
FV = PV x e^rt. What formula is this
PVIF. CC
PV = FV x e^rt
Cost of carry model
we Ignore margin cash flows and price futures contract as If forward contract
short selling restrictions impede Reverse cash and carry arbitrage
When will cost of carry model not hold for futures contracts
F = Se^rt
proportional storage costs
consumption commodities
Futures contracts on storable consumption commodities with a convenience yield
F = (S - I)eRT
What is the formula for futures contracts on stocks and bonds
F = Se(r-q)T
What is the formula for futures contracts on asset with continous yields. dividend and foreign currency.
Time 0
Could also ask, show how stock index arbitrage ensures COC relation holds
if F > Se(r-rf)T
Explain how Covered interest arbitrage ensures that IRPT holds
If the underlying asset cannot be stored (electricity)
What is the formula for futures contracts on non storable commodities
Valuing forward contracts, use time 0 and any time before maturity
at time 0, a forward contract has a value of 0.
consider two portfolios
Prove the forward valuing contracts formula, f = (F - K) e -^ RT
They are equal.
Talk about the relationship of futures price to forward price when interest rates are constant