Suppose That You Trade a Forward Contract Today That Matures

question 10

Multiple Choice

Suppose that you trade a forward contract today that matures after one year.The forward price is $105 and the simple interest rate is 7 percent per year.If after six months from today,the spot price is going to be $125 and the value of the forward contract is $20,the arbitrage profit that you can make today by trading one forward contract and other securities is:

• A) 0
• B) $1.56
• C) $2.96
• D) $3.55
• E) None of these answers are correct.

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Definitions:

Unit Product Cost

The total expense incurred in creating a product, divided by the number of units produced.

Allocation Bases

Criteria or variables used as a foundation to distribute or assign costs among different cost objects in a fair and systematic manner.

Overhead Resources

Resources used in the day-to-day operations of a business that are not directly tied to a specific product or service, such as utilities and rent.

Plantwide Overhead Rate

An overhead rate applied uniformly across an entire plant or company, calculated without regard to individual departments or products.