Forward Prices. As of 2/16/2021, Bitcoin traded at $50,000.

(a) Suppose that the two-year interest rate is .11% (EAR). What should the forward price be for delivery of 1 bitcoin on 2/16/2023?

(b) Suppose that BTC price immediately increased to $52,000. What will the new forward price be?

(c) Suppose at the beginning of the day (when the price was $50,000), you went short the forward at the forward price in part (a). Is the immediate increase in price good news or bad news (in present value terms) for you?

(d) Again suppose at the beginning of the day, you went long the forward at the forward price in part (a). If you closed your position right after the price increase in part (b), what would the profit and loss (P&L) from your trade be?

Answer rating: 100% (QA)

a To calculate the forward price for delivery of 1 bitcoin on 2162023 we can use the formula Forward ... View the full answer