Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

9. Assume that there is a forward market for a commodity. The forward price of the commodity is $45. The contract expires in one year.

image text in transcribed

9. Assume that there is a forward market for a commodity. The forward price of the commodity is $45. The contract expires in one year. The risk free rate is 10 percent. Now six months later, the spot price is $52. What is the forward contract worth at this time? Explain why this is the correct value of the forward contract in six months even though the contract does not have a liquid mar- ket as a futures contract does

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Lectures On Public Economics

Authors: Anthony B. Atkinson, Joseph E. Stiglitz

1st Edition

0691166412, 978-0691166414

More Books

Students also viewed these Finance questions

Question

Write a note on Organisation manuals

Answered: 1 week ago

Question

Define Scientific Management

Answered: 1 week ago

Question

Explain budgetary Control

Answered: 1 week ago

Question

Solve the integral:

Answered: 1 week ago

Question

4-5. What functions do transitions serve? [LO-6]

Answered: 1 week ago