Question 3:

(1) On February 20 you enter into a forward contract to buy shares of firm ABC on December 20 of

the same year. ABC shares currently trade at $100. What is the forward price? (The continuously

compounded interest rate is 10% and we assume it stays constant for the whole calendar year.)

(2) On May 20, the price of one ABC share is $150. What is the forward price of a (new) forward

contract with delivery date December 20?

(3) What is the value of the original forward contract (that you entered into in February) on May 20?

(4) Repeat point (3) if on May 20 the price of one ABC share is $50.

(5) What is the value on May 20 of a short position in the original forward contract if the ABC share

price on May 20 is $150?

(6) What is the value on May 20 of a short position in the original forward contract if the ABC share

price on May 20 is $50?

(7) What is the value of a long position in the original forward contract on February 20?