Question

Suppose we hold a forward contract on a stock with expiration 66 months from now. We entered into this contract 66 months ago so that when we entered into the contract, the expiration was T = 1T=1 year. The stock price$ 66 months ago was S_0 = 100S 0 ​ =100, the current stock price is 125125 and the current interest rate is r = 10\%r=10% compounded semi-annually. (This is the same rate that prevailed 66 months ago.) What is the current value of our forward contract? Please submit your answer in dollars rounded to one decimal place so if your answer is 42.67842.678 then you should submit an answer of 42.742.7.

Answer 1

Answer:

The current value of our forward contract is $105.1

Explanation:

According to the given data we have the following:

Spot - 6 months ago=$ 100

Spot - Current=125

Interest rate= 10%

Time=12 months

Therefore, to calculate the current value of our forward contract we would have to make the following calculation:

Forward Price=Spot price*e^(rt)    

=$100*e^(0.1*0.5)

Forward Price=$105.1

The current value of our forward contract is $105.1