Suppose you enter into a 9 month long forward contract on a non dividend paying stock when the stock price is S 0 $125 and the risk free rate is 2 0 per annum with continuous compounding (a) What are the forward price (F 0 ) and the initial value of the forward contract (b) Three months later, the price of the stock (S 0 ) is $112, and the risk free remains 2 0 What are the forward price (F 0 ) and the value of the forward contract (c) Another month later (4 months from today), the risk free rate increases to 2 25 while the stock price stays $112 What are the forward price and the value now (d) Suppose now that another month later (5 months from today) the risk free rate stays 2 25 , but the stock price goes up to $130 How much could you sell your forward contract for

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Question: Suppose you enter into a 9-month long forward contract on a non-dividend-paying stock when the stock price is S 0 = $125 and the risk-free

Suppose you enter into a 9-month long forward contract on a non-dividend-paying stock when the stock price is S₀ = $125 and the risk-free rate is 2.0% per annum with continuous compounding.

(a) What are the forward price (F₀) and the initial value of the forward contract?

(b) Three months later, the price of the stock (S₀) is $112, and the risk-free remains 2.0%. What are the forward price (F₀) and the value of the forward contract?

(c) Another month later (4 months from today), the risk-free rate increases to 2.25% while the stock price stays $112. What are the forward price and the value now?

(d) Suppose now that another month later (5 months from today) the risk-free rate stays 2.25%, but the stock price goes up to $130. How much could you sell your forward contract for?

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