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Hi David,

I went thru this case and also your and Jacks discussion on the same but i could not get 1 simple concept clear. can you pls help me with a simple example

1) MG had Long position in short term futures.

2) Markets went into Contango.

3) Now if MG is in a long position he is locked it at a price say 20$.

4) Market goes into contango i.e futures price is above spot lets assume now its 25$.

5) Then actually MG is gaining as it had bought futures at 20$ and now the same is 25$

How is MG losing? Can you pls explain me in layman terms with the same example as i gave as i got utterly confused after i went thru the earlier thread.

Thx & Rgds
Amit

Hi David,

Could you pls clarify this question? I wonder why “as yields lower than 6% imply that the CF for long-term bonds is lower than otherwise. This will tend to favor bonds with high conversion factors, or shorter bonds”? what is the relationship between CF and maturity? 
Thanks.

  The Chicago Board of Trade has reduced the notional coupon of its Treasury
  futures contracts from 8% to 6%. Which of the following statements are
  likely to be true as a result of the change?
  a. The cheapest-to-deliver status will become more unstable if yields hover
  near the 6% range.
  b. When yields fall below 6%, higher-duration bonds will become cheapest
  to deliver, whereas lower-duration bonds will become cheapest to deliver
  when yields range above 6%.
  c. The 6% coupon would decrease the duration of the contract, making it
  a more effective hedge for the long end of the yield curve.
  d. There will be no impact at all by the change.

  a. The goal of the CF is to equalize differences between various deliverable bonds.
  In the extreme, if we discounted all bonds using the current term structure, the
  CF would provide an exact offset to all bond prices, making all of the deliverable
  bonds equivalent. This reduction from 8% to 6% notional reflects more closely
  recent interest rates. It will lead to more instability in the CTD, which is exactly
  the effect intended. Answer b) is not correct, as yields lower than 6% imply that
  the CF for long-term bonds is lower than otherwise. This will tend to favor bonds
  with high conversion factors, or shorter bonds. Also, a lower coupon increases the
  duration of the contract, so c) is not correct.

Hi all,

Are the core readings supposed to exactly mirror the reading lists given in the AIMS?

I purchased – and subsequently read – the printed copy of the Core readings for the Level 1 exam. However, looking through the AIMS I can see a lot of extra readings that weren’t provided in the Core reading pack. In particular, the Financial Markets & Products AIMS lists chapters 1,2,3,4,5,6,7,9,10 of Hull!! These were not provided in the Core readings pack – and translates into a lot of extra reading in very little time!

Thanks,
John

Consider 3 random variables X,Y,Z Suppose corr(x,y) =0.4 and corr(z,y)=0.3 which of the following statements is true?

a) corr(x,z) cannot be negative.
b) corr(x,z) has to be larger than 0.3
c) corr(x,z) cannot be negative
d) none of the above.

can u throw some light on this question.

thanks and do reply soon.

Hi there,
I have a question about the exam format for the L1.
I noticed that there will be 2 sessions (morning and afternoon), will this sessions have different chapters? (ie. morning session covers Foundation of RM and QA, afternoon session covers M&P and Valuation) or they are all mixed and have same format for the morning and afternoon.

Thanks in advance,
Jason