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Problem 1. In class, we have learned that the value of a forward contract is...

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Finance

Problem 1. In class, we have learned that the value of a forward contract is the
same as the value of the stock-and-bond portfolio that replicates the contract. The
value of the (x,y) portfolio, with x share of stock and y units of cash bond, is
V=S1(f(3)-f(2)S3-S2)+e-r*t(f(3)-(f(3)-f(2)S3-S2)*S3)
This is a complicated expression. Let us define a variable,
q=S1er*t-S2S3-S2
Show that the value V can be written as
V=e-r*t[(1-q)f(2)+qf(3)]
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