Synthetic equity/bonds

[sfad]

Synthetic equity or bond positions require purchasing contracts and holding sufficient cash equivalents earning the risk-free rate to pay for the contracts at expiration.
Does “holding sufficient cash equivalents” mean that the collateral for the futures contract is held in the risk-free and thus earns the risk-free rate?

 

[MrSmart]

The number of contracts you buy reflects the future price, which is compounded at the risk free rate from today.

 

[sfad]

MrSmart wrote:
The number of contracts you buy reflects the future price, which is compounded at the risk free rate from today.

The text says that we invest the amount of the full purchase price in T-bills today. So that means we purchase risk-free bonds right?

 

[MrSmart]

Partially. The purchase price is the future price, you invest the present value of that in T-bills today, to have that amount come delivery.