A three-year long forward contract is entered into when the spot price of an investment asset is $30 and the risk free rate for all maturities. (With continuous compounding is 10%. the asset provides an income of $2 at the end of the first year and $2 at the end of the second.

a) what is the 3 year forward price?

b) what is the initial value of the forward contract?

c) Two and a half years later, the spot price of the asset is $35 and the risk free rate for all maturities is 8% (with continuous compounding). what are the forward price and the value of the forward contract?

Answer rating: 100% (QA)

To calculate the 3year forward price we need to consider the spot price riskfree rate and the income ... View the full answer