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Cash Settlement Price at Expiration

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On 12/05/2007 the December 2007 fed funds contract settled at 95.755 and the fed funds target rate was 4.50%. What is the expected cash settlement price of the futures contract as expiration if the fed cut the fed funds rates by -50bps in December 2007; assuming that the fed would only make a single rate cut at their scheduled meeting.

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Solution Summary

The solution determines the cash settlement price at expiration if the Fed cuts the Fed funds rate.

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