The Spot Price of an Asset Is $50

question 6

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:

Annual Interest Rate

The percentage rate indicating the total amount of interest paid or earned over a one-year period.

Competitive Market Price

The price established through competition where the amount supplied is equal to the amount demanded.

Interest Rate

The segment of a loan that results in interest fees for the borrower, commonly presented as an annual percent.

Interest Rate

The cost, shown as a percentage of the principal amount, that a lender requires from a borrower to use resources.