11. A firm has the following cash settled forward contracts in place on a single asset,...
11. A firm has the following cash settled forward contracts in place on a single asset, asset A. The contracts were put on at various points in the past, but all the contracts expire one year from today. Today’s spot price of the asset is $100. Riskfree is 3%. The firm will purchase 120 units. Contract details:
| Long/Short | FWD Price | units in contract | |
|
long |
80 | 100 | |
| short | 106 | 200 | |
| long | 100 | 100 |
What is the value of the contracts today?
Homework Answers
(11) GIVEN :-
A firm has the following cash settled forward contracts in place on a single asset, asset A. The contracts were put on at various points in the past, but all the contracts expire one year from today. Today’s spot price of the asset is $100. Riskfree is 3%. The firm will purchase 120 units.
TO FIND:-
What is the value of the contracts today?
SOLUTION:-
Value=120*(100*(100*e^(3%*1)-80)+200*(106-100*e^(3%*1))+100*(100*e^(3%*1)-100))
Value=384000
Therefore,
The value of the contracts today = 384000.
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