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Agata [3.3K]
3 years ago
15

"The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. What is the profit or l

oss to a short position if the spot price of the market index rises to $920 by the expiration date"
Business
1 answer:
Mademuasel [1]3 years ago
8 0

Answer:

$10 profit

Explanation:

In this question, we are asked to calculate the profit or loss to a short position.

Firstly, we identify that the spot price of market index is $900.

Now, a three months forward contract equals a value of $930.

Raising the index to $920 at the expiry date is obviously a profit to the short position.

To calculate the profit here, we simply subtract the index at expiry date from the three months forward contract.

Mathematically, this is equal to $930-$920 = $10 profit

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