Suppose that the continuously compounding annualized interest rate is 10% and that the price of a S&R stock is $1,000.

a. Suppose that you are offered a one-year long forward contract on S&R stocks at a forward price $1,200. What is the time-0 value of this deal to you as the buyer? What would make you accept the deal that you are being offered?

b. Repeat the analysis in the previous point assuming that you, as a buyer, are offered a one-year long forward contract at a forward price $1,000.