1. (1) On February 20, it enters into a forward contract to buy shares of ABC Company on December 20 of the same year. ABC shares are currently trading at $100. What is the forward price? (The interest rate compounded continuously is 10% and we assume it remains constant throughout the calendar year.)

2. (2) On May 20, the price of a share of ABC is $150. What is the forward price of a (new) forward contract with a delivery date of December 20?

3. (3) What is the value of the original forward contract (that you entered into in February) on May 20?

4. (4) Repeat point (3) if on May 20 the price of a share of ABC is $50.

5. (5) What is the value on May 20 of a short position in the original forward contract if the price of ABC's shares on May 20 is $150?

6. (6) What is the value on May 20 of a short position in the original forward contract if the price of ABC's shares on May 20 is $50?

7. (7) What is the value of a long position in the original forward contract on February 20?

Answer rating: 100% (QA)

SOLUTION 1 The forward price can be calculated using the formula Forward Price Spot Price er t where r is the continuously compounded interest rate an... View the full answer