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Let A(0) = $100 and A(1) = $110. Also let S(0) = $25, and suppose that the random variable S(1) has the following distribution: $30 with probability p S(1) = $20 with probability 1-p for 0 < p < 1. A portfolio consists of 10 shares of A and 50 shares of S. Find the forward price F of a forward contract on buying one share of stock S with delivery date at t = 1.

Let A(0) = $100 and A(1) = $110. Also let S(0) = $25, and suppose that the random variable S(1) has the following distribution: $30 with probability p S(1) = $20 with probability 1-p for 0 < p < 1. A portfolio consists of 10 shares of A and 50 shares of S. Find the forward price F of a forward contract on buying one share of stock S with delivery date at t = 1.

Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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Let A(0) = $100 and A(1) = $110. Also let S(0) = $25, and suppose that the random variable S(1) has the following distribution: S(1) = $30 with probability p $20 with probability 1-p for 0 < p < 1. A portfolio consists of 10 shares of A and 50 shares of S. Find the forward price F of a forward contract on buying one share of stock S with delivery date at t = 1.
Transcribed Image Text:Let A(0) = $100 and A(1) = $110. Also let S(0) = $25, and suppose that the random variable S(1) has the following distribution: S(1) = $30 with probability p $20 with probability 1-p for 0 < p < 1. A portfolio consists of 10 shares of A and 50 shares of S. Find the forward price F of a forward contract on buying one share of stock S with delivery date at t = 1.
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