Question: Question 3 (Total 14 marks) For the case that the underlying is an investment asset which pays a fixed yield q (as an APR with

Question 3 (Total 14 marks) For the case that the underlying

Question 3 (Total 14 marks) For the case that the underlying is an investment asset which pays a fixed yield q (as an APR with continnous compounding), prove, using the no-arbitrage principle, that the forward price F, today for a forward contract on this asset with maturity at time I (as a fraction of the year) from today equals Fo = Sere), where S, is the spot price of the asset, and r the risk-free interest rate (also an APR with continuous compounding). (Hint: You may think of 1 unit of such asset growing over time I to become the e' units.)

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