An off-market forward contract is a forward where either you have to pay a premium or you
Question:
a. Verify that if the forward price is $1100, the profit diagrams for the index and the 1-year forward are the same.
b. Suppose you are offered a long forward contract at a forward price of $1200.
How much would you need to be paid to enter into this contract?
c. Suppose you are offered a long forward contract at $1000. What would you be willing to pay to enter into this forward contract?
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Step by Step Answer:
a If the forward price is 1100 then the buyer of the oneyear forward contract receives at expiration after one year a profit of ST 1100 where ST is th...View the full answer
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