An asset is priced at $100. A two-year forward contract is created, with mark-to-market in one year (Month 12). The risk-free rate is 3%. The asset is worth $105 in Month 12.

1) What is the amount of the credit risk at Month 0?

a.$0

b.$2

c.$3

d.$5

2) What is the amount of the credit risk at Month 12?

a.$0

b.$2

c.$3

d.$5

3.Who bears the credit risk at Month 12?

a.The long

b.The short