year forward contract was established with a price of $70.25. Now, a year and a half later (t= 1.5 years), the spot price is $81.19 and the risk- free rate is 5%. Calculate the value of the forward con

year forward contract was established with a price of $70.25. Now, a year and a half later (t= 1.5 years), the spot price is $81.19 and the risk- free rate is 5%. Calculate the value of the forward con

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

A two- year forward contract was established with a price of $70.25. Now, a year and a half later (t= 1.5 years), the spot price is $81.19 and the risk- free rate is 5%. Calculate the value of the forward contract.

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