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Basic Question 3 of 7
John has an asset that is worth $110. He plans to sell it in 8 months. The risk-free interest rate is 4.5%. Suppose the forward contract is entered into at $113.28 (as computed in question 1). Four months later, the price of the asset is $105. What's the market value of the forward contract at this point in time from John's perspective?
User Contributed Comments 4
| User | Comment |
|---|---|
| vi2009 | Got to remember that T = # of months to expiration. therefore T - t = 8/12 - 4/12 = 4/12 |
| joywind | no, vl2009 T = term of the contract from initiation to close = 8 months t = time past = 4 months T-t = time to expiration = 4 months |
| forry9er | Stick to the principles of discounting! The answer should be 6.65. Divide (i) by the # of compounding periods, then multiply (N) by # of compounding periods. |
| Sagarsan88 | Agree forrey9e |
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Learning Outcome Statements
explain how the value and price of a forward contract are determined at initiation, during the life of the contract, and at expiration
CFA® 2024 Level I Curriculum, Volume 5, Module 5.