Hi everyone,
in the P1.T3 GARP textbook, Chapter 19 exercises 19.17 and 19.18 read as follows:
19.17: The SOFR and Eurodollar futures quotes for June of a certain year are 98.36 and 98.18. How should these be interpreted? What do they indicate about interest rates?
19.18: If in Question 19.17 the continuously compounded three-year zero rate is 4.12%, what is the continuously compounded 3.25 year rate?
Now I get the the Eurodollar quote implies a Libor futures rate of 1.82% and the SOFR quote implies a futures rate of 1.64%, which is the solution of 19.17.
The solution of 19.18 will be given by (F*0.25 + 0.0412*3)/3.25, where F is the futures rate. The solution uses F = 4.255% and gets 4.13%. I do not understand where this F is coming from. Isn't 1.82% the rate that needs to be applied here? Also I cannot find any reasonable relation between 4.255% and 1.82%.
Apologies if I am lacking basic understanding.
Thanks a lot.
in the P1.T3 GARP textbook, Chapter 19 exercises 19.17 and 19.18 read as follows:
19.17: The SOFR and Eurodollar futures quotes for June of a certain year are 98.36 and 98.18. How should these be interpreted? What do they indicate about interest rates?
19.18: If in Question 19.17 the continuously compounded three-year zero rate is 4.12%, what is the continuously compounded 3.25 year rate?
Now I get the the Eurodollar quote implies a Libor futures rate of 1.82% and the SOFR quote implies a futures rate of 1.64%, which is the solution of 19.17.
The solution of 19.18 will be given by (F*0.25 + 0.0412*3)/3.25, where F is the futures rate. The solution uses F = 4.255% and gets 4.13%. I do not understand where this F is coming from. Isn't 1.82% the rate that needs to be applied here? Also I cannot find any reasonable relation between 4.255% and 1.82%.
Apologies if I am lacking basic understanding.
Thanks a lot.
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