The (%) price of EDF contracts is quoted as $100 - R$, where$R$is the annualized LIBOR rate. This is also known as the index price. For example, an EDF with a quoted price of 94.25 implies that$R$, the annualized LIBOR rate at expiry, is expected to be 5.75%.

However, the curriculum requires us to concentrate on the 3-month EDF. It follows that to get the actual or effective dollar price of the contract given the index price, we have to divide the yield by four so as to reflect the three-month rate.

So if the quoted (index) price is 94.25, here's how we get the effective price:

Step 1: Convert the annual rate into a three-month rate

Annual rate = 5.75%, so three-month rate = $5.75% / 4 = 1.4375%$

Thus, the effective percentage price is $100 - 1.4375 = 98.5625$

Step 2: Convert into an effective dollar price

Each EDF contract has a face amount of $1 million.

Thus, effective price = $98.5625/100 \times `1`,000,000 = \`985`,625$