Question: A one-year long forward contract on Amazon is entered into when its stock price is $1,900 and the continuous compounded interest rate is 2.5%. (Note:

A one-year long forward contract on Amazon is entered into when its stock price is $1,900 and the continuous compounded interest rate is 2.5%. (Note: Does Amazon pay dividends?)

a) What are the fair forward price and the initial value of the forward contract?

b) If the forward price is set at $1,950, how would you arbitrage it?

c) Six months later, the stock price of Amazon rises to $2,000. What are the current fair forward price and the current value of the long forward contract?

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