Suppose a security has a current price of $20.00, and Investor A believes the future price of the security will either be $22.20 after one year or $18.00 after one year. Investor B believes the future price will be $23.00 after one year or $17.00 after one year. Given a 6% annual risk-free rate, the forward price of the security is $21.20. Does the forward contract cost one investor more money than the other investor?

Defend your answer by comparing the cost of the tracking portfolio for each invest

Answer rating: 100% (QA)

Answer I First lets understand what a forward contract is and the concept of a tracking portfolio i A forward contract is a contractual agreement between two parties to buy or sell an asset at a speci... View the full answer