Suppose You Sell a Three-Month Forward Contract at $35

question 33

Multiple Choice

Suppose you sell a three-month forward contract at $35.One month later,new forward contracts are selling for $30.The risk-free rate is 10 percent.What is the value of your contract?

• A)$4.96
• B)$5.00
• C)$4.92
• D)$4.55
• E)none of the above

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Definitions:

Inflation

The rate at which the general level of prices for goods and services is rising, subsequently eroding purchasing power.

Unemployment

The condition in which people actively seeking work are unable to find employment.

Long Run

The long run is a period in economics in which all factors of production and costs are variable, allowing for full adjustment to change.

Unemployment

Unemployment refers to the situation when individuals who are able and willing to work are not able to find employment.