Question: A trader takes a short position in a 1-year forward contract on an investment asset when the spot price is $1,750 per unit and the

A trader takes a short position in a 1-year forward contract on an investment asset when the spot price is $1,750 per unit and the risk-free rate of interest is 2% per annum with continuous compounding. The asset provides an income yield of 5% per annum with continuous compounding.

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

b) Three months later, the asset is trading at $1,705 per unit and the risk-free rate is now 6% with continuous compounding. What are the forward price and the value of the forward contract at this point?

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