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  3. 2. an asset whose spot price is k100 is put into c

2. An asset whose spot price is K100 is put into consideration. There are plans...

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2. An asset whose spot price is K100 is put into consideration. There are plans by investor to sell it in one year and the investor is worried that the price may have fallen at the point of time. To hedge that risk, a forward contract is entered into by the investor to sell the asset in a years' time. Assume that the risk-free rate is 10%. a. What is the appropriate price at which this investor can enter into the contract to sell the asset in one years' time? (2 Marks) b. After three months into the contract, the price of the asset is K90. What is the gain or loss realized in the forward contract? (2 Marks)

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