Question: You have a long position in a 12-month forward contract where the underlying asset is cotton. Delivery price in the contract is set at $80

You have a long position in a 12-month forward contract where the underlying asset is cotton. Delivery price in the contract is set at $80 per pound. Contract is on fifty thousand pounds of cotton. Cotton oil is currently trading at $73 per pound and risk free rate is 1% per year.

a) What is the value of the long forward contract?

b) Explain the meaning and implications of this value.

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