Question: Question 1 (10%) Consider a 2-year forward contract to buy 1 million shares of a non-dividend paying stock. The current stock price is $80 per

Question 1 (10%) Consider a 2-year forward contract to buy 1

Question 1 (10%) Consider a 2-year forward contract to buy 1 million shares of a non-dividend paying stock. The current stock price is $80 per share, the delivery price is $85 per share, and the continuously compounded risk-free rate is 3% per annum. Furthermore, the stock's expected growth rate is 8% per annum and its volatility is 20% per annum. Calculate the loss on the forward contract in 6 months that has only a 1% probability of being exceed. Note: If M . ) is the standard normal CDF, then /-(0.01) = - 2.3263

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