$8$Consider a security that sells for$$1,000$ today. A forward contract on this security that expires in one year is currently procedure at $$1,109.$ The annual rate of interest is $6\mathrm{.}75$ percent assume that this is an off market Forward contract

A$.$ Calculate the value of the forward contract today V$($ OT$)$

B$.$ Indicate whether payment is made by the long to the short or vise versa

$2.$ Assume that you own a security currently worth $$500.$ You plan to sell it in two months. To hedge against a possible decline in price during the next two months. You enter into a forward contract to sell the security in two months. The risk$-$ free rate is $3\mathrm{.}5$ percent.

A$.$ Calculate the forward price on this contract

B$.$ Suppose the delear offers to enter into a forward contract at $$498.$ Indicate how you could earn arbitrage profit

C$.$ After one month, the security sells for $$490.$ Calculate the gain or loss to your position

Answer rating: 100% (QA)

A Calculate the value of the forward contract today V0T The formula to calculate the value of a forw... View the full answer