AUTHOR: ROBERT DAIGLER
Note: Netscape shows subscripts and subscripts as "regular" letters
I. CORRECTIONS FOR EQUATIONS
1. Ch. 6, p. 189, equation in Exhibit 6-1: "Cash flow is .... + D"
2. Ch. 8, p. 237, symbol definition for equations (8-1) and (8-2): r = the coupon yield received on the cash bond
3. Ch. 8, p. 241, eq. 8-5 (also see the equation on p.242, Ex.8-1): the equation and explanation of the symbols can be confusing as it now stands. The correct equation with the appropriate symbol is:
CFE = [sum from t=1 to n] Ct (1 + .08/2) [to the t power] /100,000
where Ct = the cash flows for the bond (the coupons and principal received during time t). The annual coupon is divided by two to obtain Ct since coupons are paid seminanually.. The principal is NOT divided by two.
For Equation 8-6: the 100,000 in the denominator of the equation should only be the divisor for the term on the right. Also, for consistency, Ct/2 should read Ct and Ct/4 should read Ct/2. Thus Equation 8-6 should read:
CFO = [CFE + Ct/100,000]/(1 + .08/2) [to the .5 power] - (Ct/2)/100,000
The error in Equation 8-6 also appears in Example 8-1 on p. 243, although the calculations of the example are correct. (In this Example, for consistency, the value (7625/4) should read (3812.50/2); this does not affect the answer).
4. Ch. 11, p. 333, equation 11-13: should read
N = [-PC/PF][TVC/VF]
5. Ch. 11C, p. 354: eq. 11C-1 under "where lambda = ..."
the [rC(-i) should be [(rC - i)
6. Ch. 13A, p. 406: after eq. 13A-5: Xi = (should read) market value hedge ratios for instruments 1 and 2
7. Ch. 14, p. 417, eq. 14-3: "PV target" should read "BPV target"
II. CORRECTIONS TO THE PROBLEMS AT THE END OF THE CHAPTERS
1. Ch.2, p.63, problem 2-1: The statement of the problem should read that the MMI is 500 times the Index.
2. Ch.5A, p.171, problem 5A-1: The first futures contract expires in one day. (Hint: calculate the forward rates.) (Note: for consistency the time deposit and futures rates should have been almost equal; however, use the numbers in the problem.)
3. Ch.7, p.231, problem 7-5: Accrued interest should be $6.60.
4. Ch. 8, p. 257, problem 8-2: Hint: use equation 8-3 for the calculations; also look at Table 8-1.
5. Ch. 8, p. 257, problem 8-7: need to use December 1991 conversion factors in the text. Use 182 days for the half-year.
6. Ch. 10, p. 321: Problem 10-6: next to last line "sell the futures" should be "buy the futures".
7. Ch.11, p.346, problem 11-4: Note that the cash prices are listed first. To use the table format given in the text the futures prices need to be listed first in the table.
8. Ch. 13A, p. 409: problem 13A-1: Find the modified duration. Also, use the table format to find duration and convexity. Assume an annual coupon.
9. Ch. 13A, p. 409, problem 13A-2: In addition, find the modified duration. Also, use the table format to find the answers.
III. CHANGES TO FIGURES, EXHIBITS, EXAMPLES, ETC.
1. Ch. 2, p. 48, Example 2-2, 2d par.: "-.03 X $25 = -$75" should be "-.03 X $2500 = $75"
2. Ch. 3, p. 99, Figure 3-2 label: "F. Speculating... than F due" should be "F. Speculating... than E due"
3. Ch. 3, p. 101, Example 3-2A: there should also be an example using MMI futures.
4. Ch. 5, p. 162, Exhib. 5-6: (ADD the following shown in italics):
For short arbitrage:
Obtain funds from borrowing for three months
For long arbitrage:
Obtain funds from borrowing for six months
5. Ch.5A, p.170, Table 5A-2: to determine the futures average yield use the following equation (note this is a simple interest rate rather than a compound rate):
([1 + i{90/360}] - 1) [360/90(n)]
6. Ch. 6, p. 191, Example 6-3: At this time (1986) the MMI contract was 250 times the index rather than 500 times the index. Also note that 50% of the funds used are internal while 50% are borrowed (on margin). Typically borrowed funds have a different interest rate than the opportunity cost of the internal funds.
7. Ch. 8, p. 242, Example 8-1: 6 lines from the bottom: Accrued interest = $20.9478022 should be $21.0635.
8. Ch. 9, p. 272, Exhib. 9-1: (ADD the following shown in italics):
For short pure arbitrage:
Obtain funds from borrowing for three months
For short quasi arbitrage:
Short quasi-arbitrage (As an alternative to buying or holding for three months)
For long pure arbitrage:
Obtain funds from borrowing for six months
For long quasi-arbitrage:
Long quasi-arbitrage (As an alternative to buying or holding for six months)
9. Ch. 10, p. 305, Example 10-1: 144 30/32 should be 114 30/32; bottom line of example should be $124,375 NOT $124,735
10. Ch. 11, p. 331, Figure 11-2: the residual line needs to connect to one of the points
11. Ch. 11C, p. 353, Figure 11C-1: A vs. B vs. C graphs should be tangent at the same point vertically (each straight line should be tangent to the curved lines at the same place on the X-axis).
12. Ch. 13A, p. 408, Example 13A-2: Col. 2, line 1 has -$3.92: it should be - $33.92.
13. Ch. 13A, p. 409, Table 13A-3, panel B: there should be vertical lines to separate the pairs of hedge ratios. The pairs are: (1) Eurodollars and T-notes; (2) T-notes and T-bonds; and (3) Eurodollars and T-bonds.
14. Ch. 14, p. 418, Example 14-1: second line from the bottom should read "Futures gain (9 26/32% X 446 X $100,000)"
IV. CONFUSING STATEMENTS
1. Ch. 2, p. 37, Exhibit 2-2: for the NYSE futures quotes the Sept "settle" is higher than the "high" price. Here the settlement committee has adjusted the settle price because the Sept contract did not trade near the close.
2. Ch. 3, p. 44: bottom line "conversion" should be "convention"
3. Ch. 2A, p. 68: (5th parag): "Multiplying by...value of $108,375" should be "$98,337.50".
4. Ch. 5, p. 155-156: titles on p. 155 and p. 160 reads "Implied Repo Rates" while other places in the chapter use "Implied Financing Rate" (the latter is more general)
5. Ch. 5A, p.168, first full paragraph: the sentence "By shorting the near-term..." is incorrect. This sentence should read as follows: "On the other hand, by shorting the near-term contract and going long the deferred contract, it is possible to create a maximum price spread."
6. Ch. 6, p. 183: Example title should read "... Futures Contract"
line 5 of example: "forward price" should be "fair price"
two lines after eq. (6-3): "forward" should be "fair"
7. Ch. 6, p. 185, top: "forward price" should be "fair price"; Ch. 6, p.188 line after "Initiating.." should have "fair price" rather than "forward price", also on 5th line of next paragraph; Ch. 6, Example 6-2, p. 190: on lines 1 and 3: "forward" should be "fair"; Ch.6, p.193, Ex.6-4: second line and 1st line of second parag. "forward price" should be "fair price"; Ch.6, p.204 prob.6-1: "forward" should be "fair"; Ch.6, p.205, prob.6-2: "forward" should be "fair"; Ch.6, p.206, prob.6-5a: "forward" should be "fair".
8. Ch. 6, p. 195, paragraph 1: the sentence "However, the transactions costs..." should read "However, the transactions costs used by Modest and Sundaresan are much higher than institutions pay. Moreover, their assumption that long futures arbitrage is unduly costly (because of the short sale rule) does not conform to the ..."
9. Ch. 6, p. 202, second "dot", last line: "Thus, Blume, ... affected the market" should read "Blume,... caused these aberrations in the cash market"
10. Ch.9, p.272, line 1 after the Exhibit: "The forward ..." should read "The forward rate determined ... rates is compared to the interest ..."
11. Ch. 10, p. 301: the italics in the middle of the page reads more clearly if it is replaced by "hedging replaces absolute price risk with basis risk"
12. Ch.12A, p.381: should read "term structure curve" rather than "yield curve"
13. Ch.14, p.419, FN6, line 1: "BPV for futures of $100.80 in Example 14-2" should read "BPV for futures of $115.61 in Example 14-1"
V. SUPPLEMENTAL PROBLEMS IN THE INSTRUCTOR'S MANUAL
1. Ch. 8, SP 8-21, p. 183 IM: for the third bond the price should be 115:16, not 105:16
2. Ch. 11 SP 11-12 and SP 11-13, p.194-195 IM: Note that the cash prices are listed first. To use the table format given in the text the futures prices need to be listed first in the table.
V. MINOR CHANGES
1. Ch. 2, p. 36: line 1: "financial Iutures" should be "financial futures"
2. Ch. 2, p. 46: the 30-day contract needs a $ sign.
3. Ch. 2, p. 58, first paragraph: "WSJ prices... true because.." add "price" after "true"
4. Ch. 2, p. 67: symbol for Australian dollar "A.S." should read "A.$" Also, the number of dollars should read "100,000"
5. Ch. 2, p. 69, Figure 2A-2: Deutschemarks should not be capitalized
6. Ch. 2B, p. 76, 80: in the quotes some of the zeros are typeset as "O"s (the letter O)
7. Ch. 3, p. 97, Exhibit 3-1: "Before Delivery" line to "Day 3" has a line to the left that should not be there.
8. Ch. 3, p. 101, Example 3-2B: place numbers under "Price Index"
9. Ch. 3, p. 101, par. 1: "For the T-bill futures example in Panel B" should read "Eurodollar futures example"
10. Ch. 3, p. 110: Table 3-4 Source should read November 1991.
11. Ch. 3, p. 111: Figure 3-7 label should read S&P 500
12. Ch. 4, p. 125: "Figure 4-1 ...crowded condition.." omit the words "crowded condition"
13. Ch. 5, Focus 5-1, p. 150: Silver and the Hunts, 4th line: "The Hunts made ... by selling contracts" should be "by buying contracts"
14. Ch. 5, Figure 5-3, p. 155: title should read S&P 500 futures
15. Ch. 5, p. 158, 2d section: "short" should be bold rather than italic.
16. Ch. 5, p. 166, problem 5-9: add "Futures" to the end of the title
17. Ch. 5A, p. 170, Table 5A-2: the fourth column should read "Futures"
18. Ch. 5B, p. 173: " If the covariance between the cash prices and bond prices is grater than the variance of the bond prices.." should read "price changes" instead of "prices"
19. Ch. 5D, p. 176-177: some of the equation numbers are not to the right margin
20. Ch. 6, p. 184, Figures 6-2 and 6-3: Could change the format of the date labels to make them more consistent.
21. Ch.6, p.185, p.186, p.190 p.200: S&P should be S&P500
22. Ch. 8, p. 236: terminology defines "Implicit" put option (which is also in the index), while the text uses "Implied"
23. Ch. 8, p. 244, Table 8-2: for consistency of format the "0." in front of the first three bonds in the last two columns should be removed. Also, footnotes "a" and "b" are not referenced in the table and can be removed.
24. Ch. 8, Table 8-3, p. 251: preferable to use the multiplication sign X rather than using dots (.)
25. Ch. 8, p. 258, problem 8-8: for bond A .920 should be .9200 for consistency of format.
26. Ch. 8A, Figure 8A-3, p. 262: should say "T-bond" in title for consistency and so one knows the data is T-bond futures data
27. Ch.9, p.270, line 3: "cost of carry mode" should be "cost of carry model"
28. Ch. 9, p.281: in T-bill price equation change "discount yield" to "discount rate"
29. Ch.9, p.294, prob.9A-3: says "bid" but both bid and ask are given
30. Ch. 10, p. 305: "Typically, ... as discussed later .." This topic has already been discussed.
31. Ch. 10, p. 309: section on "Disadvantages.." should reflect that prices as well as interest rates relate to this topic.
32. Ch. 10, p. 316: Section has only one level 2 head (should be eliminated).
33. Ch. 10, p. 337: line 4: all but two R2 values are above 73%.
34. Ch. 10, p. 365: eq. no. 12-3 not even with right margin.
35. Ch. 10, p. 366, eq. 12-8: replace P with PB.
36. Ch. 10, p.369, line after "Convexity": change "yields" to "interest rates" for preciseness
37. Ch. 12, p. 369, Figure 12-3: the title and the description run in together.
38. Ch. 12, p. 371 and p. 378: the reference Bierwag and Kaufman (1977) should be Bierwag (1977)
39. Ch. 12, p. 372: par. 2 line 4: should emphasize in italic that "...potential adverse changes...portfolio is immunized."
40. Ch. 12, p. 376: one needs to rebalance if there is a change in the time to maturity, a major change in interest rates, or a change in the shape of the yield curve.
41. Ch. 12, p. 379: problem 12-6 should have an *.
42. Ch. 12, p. 380, Appendix 12A: under "Portfolio Structure": problems occur with bond portfolios when the maturities are like a "barbell" structure.
43. Ch. 12, p. 381: "Term Structure": should say the term structure curve rather than the yield curve.
44. Ch. 13, p.385: "In Chapter 12" should be "In Chapter 11"
45. Ch. 13, p.387, line 7: "flat yield curve" should be "flat term structure curve"
46. Ch. 13, p. 392, line 15: "Most of the ... are more expressive.." should be "expensive"
47. Ch. 13, p. 397: "Summary and Looking Ahead" section: the looking ahead paragraph should NOT include the words "dealers, corporations, and insurance companies"' it should include notation that efficient markets and pricing behavior is discussed.
48. Ch. 13A, p. 402, Table 13A-1: could put $ signs for columns (2), (3), and (4)
49. Ch. 13A, p. 404, Figure 13A-4: reference not necessary.
50. Ch. 14, p. 423: the second "Chapter 10" should be "Chapter 11"
51. Ch. 14, p. 427, Figures: labels on figures could designate the appropriate curve more precisely. For figure 14-1, the "96% long asset..." is the solid line that looks like a call curve; the "60% long asset..." is associated with the dashed line. For figure 14-2, the "dynamic portfolio..." is associated with the dashed line.
52. Ch. 14, p. 432, Sharpe reference: the second 1981 date should be removed.
53. Ch.15, p.436: definition of "static gap" should be deleted.
54. Ch. 15, p. 440 FN 3: "Chapter 11" should be "Chapter 12"; p. 444 FN 10 "Chapter 11" should be "Chapter 12"; p. 55: "Chapters 9 to 13" should be "Chapters 10 to 14" and "Chapters 9 and 10" should be "Chapter 10"; p. 449 Fn 18 "Chapter 7" should be "Chapter 8".
56. Ch. 14, p. 449, line 14: "The proper response..l phrase.." should be "phase"
57. Ch. 16, p. 483: in the bibliography the Ma, Dale, and Donaldson reference: should add Vol. 10, No. 2.
58. Ch. 16A, p. 486, Stevenson and Bear reference: "Trends of Random.." should be "Trends or Random..."
59. Credits, p. 487: after "Risk and Return" need to add "in Commodity Futures"
60. Index: Advances in Futures and Options should add Research