Answer:
$ - 1.96
Explanation:
After three months, Alice (long the contract) can buy the underlying by paying the delivery price of $40 which is $2 less than $42 the long position would have to pay if the contract was entered today.
DATA
Delivery price = $40
The three-month risk-free interest rate (with continuous compounding) =8%.
The current forward price = $42
Solution
So based on the present situation, Alice would be in $2 profit at the end of 3 months and Bob would be in $2 loss
Present value of Bob's loss (with continuous compounding) = 2\times e^{-0.08\times 0.25}
Present value of Bob's loss (with continuous compounding) = $1.96
The value of Bob's position is $ - 1.96
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The answer is 96!
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The answer is false i hope this helps :3
