An off-market forward contract is a forward where either you have to pay a premium or you receive a premium for entering into the contract. (With a standard forward contract, the premium is zero.) Suppose the effective annual interest rate is 11 % and the S-R index is 1000. Consider 1-year forward contracts. a) Suppose you are offered a long forward contract at a forward price of $ 1310. How much would you need to be paid to enter into this contract $ 144.1 b) Suppose you are offered a long forward contract at a forward price of $ 1035. How much would you need be willing to pay to enter into this contract 2$ 113.85 ?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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An off-market forward contract is a forward where either you have to pay a premium or you receive a premium for entering into the contract. (With a standard forward contract, the premium is zero.) Suppose the effective annual interest rate is 11% and the S-R index is 1000. Consider 1-year forward contracts.

a) Suppose you are offered a long forward contract at a forward price of $1310. How much would you need to be paid to enter into this contract? 
$144.1

b) Suppose you are offered a long forward contract at a forward price of $1035. How much would you need to be willing to pay to enter into this contract? 
$113.85
Transcribed Image Text:An off-market forward contract is a forward where either you have to pay a premium or you receive a premium for entering into the contract. (With a standard forward contract, the premium is zero.) Suppose the effective annual interest rate is 11% and the S-R index is 1000. Consider 1-year forward contracts. a) Suppose you are offered a long forward contract at a forward price of $1310. How much would you need to be paid to enter into this contract? $144.1 b) Suppose you are offered a long forward contract at a forward price of $1035. How much would you need to be willing to pay to enter into this contract? $113.85
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