A long forward on a non-dividend-paying stock has six months to maturity. The risk free rate...

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A long forward on a non-dividend-paying stock has six months to maturity. The risk free rate is 10% annually, the current sto

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Answer 1

Answer #1

USING CONTINUOUS COMPOUNDING
Value of a long forward=(Spot price-Delivery Price*e^(-risk free rate*t))=(25-24*e^(-10%*6/12))=2.170493812

USING ANNUAL COMPOUNDING
Value of a long forward=(Spot price-Delivery Price/(1+risk free rate)^t)=(25-24/(1+10%)^(6/12))=2.116897858

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Answer 2

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