A security is currently worth $83. An investor plans to purchase this asset in 120 days and is concerned that the price may have risen by then. To hedge this risk, the investor enters into a forward contract to buy the asset in 120 days. Assume that the risk-free rate is 5.0%.

Suppose that at expiration, the price of the asset is $86. The value of the forward contract at expiration and the net gain or loss to the investor on the whole transaction is:

a.

Value of $1.66; net loss of $1.34

b.

Value of $1.34; net gain of $1.66

c.

Value of $1.66; net gain of $1.34