A long forward contract on a non-dividend-paying stock was entered into some time ago. It currently has 8 months to maturity. The risk-free rate with continuous compounding is 6.6% per annum, the stock price is $39.26 and the delivery price is $30. Calculate the value of the forward contract?

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778 viewsOctober 16, 2016

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Darshita 6.14K October 16, 2016 0 Comments

1 Answer

score 0 · Answer 1 · 2016-10-16T10:33:23+00:00

Answer : value of the forward contract = $ 10.71

Working Notes for the above answer

We have provided the information as follow

Particular	Figure
So = Spot price	39.26
T = Time remaining to the maturity	0.75
r = Risk free rate of return (Componded Continuously)	6.6
K = Delivery price set in the contract	30

The formulla is as follow

f = S0 – K^(1+r)-T

f = 39.26- 30^{-(0.12×0.75)*6.6}

= 10.71

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