Suppose that the current spot price for an asset is \(S_{0}=\$ 50\), the current forward price for delivery in one year is \(F_{0}=\$ 53\), and the annual risk-free interest rate is \(3 \%\), with annual compounding. At time \(t=0\) we may:

1. Borrow \(\$ 50\) to buy the asset.

2. Enter into a long position to sell the asset in one year at the forward price.

In one year, we will have to repay

Hence, we may sell the asset at \(F_{0}=\$ 53\), cashing in a risk-free difference of \(\$ 1.5\). In this case, we have a zero net cash flow at time \(t=0\), and a sure profit at maturity.

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$50 x 1.03 $51.5.