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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