Question
You are looking at the forward price for a non-dividend paying asset and you see that the price of a sixth-month forward contract for the
You are looking at the forward price for a non-dividend paying asset and you see that the price of a sixth-month forward contract for the asset is quoted at $53. The current spot price is $50 and the risk-free rate of return for a sixth-month investment is 10%. What actions should you do today to take advantage of this situation?
A)Short the forward, buy the asset, borrow to buy the asset, and repay the loan in six months.
B)Long the forward, short the asset, invest the short-asset proceeds, and harvest the investment proceeds in six months.
C)Long the forward, buy the asset, invest the asset proceeds, and harvest the investment proceeds in six months.
D)Short the forward, short the asset, borrow to short the asset, and repay the loan in six months.
E)Do nothing, the quoted forward price is correct.
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