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Assignment 1 Consider a security that sells for $ 1 , 0 0 0 today. A forward contract on this security that expires in one
Assignment Consider a security that sells for $ today. A forward contract on this security that expires in one year is currently priced at $ The annual rate of intcrest is percent. Assume that this is an offmarket forward contract. A Calculate the value of the forward contract today, B Indicate whether payment is made by the long to the short or vice versa. Assume that you own a security currently worth $ You plan to sell it in two months. To hedge against a possible decline in price during the next two months, you enter into a forward contract to sell the security in two months. The riskfree rate is percent. A Calculate the forward price on this contract. B Suppose the dealer offers to enter into a forward contract at $ Indicate how you could earn an arbitrage protit. C After one month, the security sells for $ Calculate the gain or loss to your position.
Assignment
Consider a security that sells for $ today. A forward contract on this security that
expires in one year is currently priced at $ The annual rate of intcrest is
percent. Assume that this is an offmarket forward contract.
A Calculate the value of the forward contract today,
B Indicate whether payment is made by the long to the short or vice versa.
Assume that you own a security currently worth $ You plan to sell it in two
months. To hedge against a possible decline in price during the next two months, you
enter into a forward contract to sell the security in two months. The riskfree rate is
percent.
A Calculate the forward price on this contract.
B Suppose the dealer offers to enter into a forward contract at $ Indicate how
you could earn an arbitrage protit.
C After one month, the security sells for $ Calculate the gain or loss to your
position.
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