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Assume that you want to buy one share of Spotify in T= 2 years. Todays share price of Spotify is $195, the risk-free rate is

Assume that you want to buy one share of Spotify in T= 2 years. Todays share price of Spotify is $195, the risk-free rate is 3% p.a. (annually compounded) and the annualized standard deviation of stock returns is 25% . Use one binomial period in this exercise (N=1).

  1. Calculate the forward price
  2. Calculate the change in the forward price as the standard deviation of the underlying increases by 10 percentage points. What is the intuition behind this result?

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