A Short Forward Contract That Was Negotiated Some Time Ago

question 4

Multiple Choice

A short forward contract that was negotiated some time ago will expire in three months and has a delivery price of $40.The current forward price for three-month forward contract is $42.The three month risk-free interest rate (with continuous compounding) is 8%.What is the value of the short forward contract?

• A) +$2.00
• B) −$2.00
• C) +$1.96
• D) −$1.96

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Definitions:

Perceptual Hypothesis

A proposal predicting how stimuli are organized and interpreted by the brain to form perceptions.

Distal Stimuli

Objects and events in the external world that provide the basis for sensory input.

Proximal Stimuli

The patterns of stimuli from objects and events that actually reach your senses like the light hitting the retina or sound waves hitting the eardrum.

Top-Down Processing

A cognitive process that starts with the brain applying what it knows and what it expects to perceive and interpret sensory information.