Q1 A forward contract was negotiated some time ago and a delivery price of 50...
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Q1 A forward contract was negotiated some time ago and a delivery price of 50 was agreed upon. At present, there are 6 months remaining for the contract to expire and the current forward price of the contract is 40. The risk-free interest rate is 8% per annum. (a) What is the current value of a short position at the forward contract? [5] (b) Three months later, the price of the underlying stock has increased to 60 and the riskfree interest rate is still 3%. What is now the value of a short position at the forward contract? What is the forward price of a contract entered into at this time with the same expiration date as the above contract? [7]
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