The Spot Price of an Asset Is $50

question 23

Multiple Choice

The spot price of an asset is $50.The expected return on the asset is 10% a year (in simple terms) and the standard deviation of these returns is 20%.The risk-free rate of interest is 5% a year in simple terms.Assuming no costs or benefits of carry,what is the one-year forward price of the asset?

• A)$52.50
• B)$55.00
• C)$57.50
• D)$60.00

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Definitions:

Material Fact

An important fact that if known might influence a decision maker’s decision, such as in a contract negotiation or in the dissemination of information to investors.

Mislead

To cause someone to have a wrong idea or impression about someone or something.

Ultramares Rule

A doctrine limiting the liability of auditors to third parties for negligence, except in cases of fraud or misrepresentation.

Near Privity

A relationship closely resembling that of direct contractual connection, often recognized in legal contexts despite the absence of an actual contract.