Baran

AIM 7: Define and provide an example of the cost-of-carry model for forward prices where the assets have no interim cash flows.

 

1、Using the continuous time forward pricing model, what is the no-arbitrage price of a 9-month forward contract if the interest rate is 2.4 percent and the spot price of the asset is $1,650?

A) $1,664.
 
B) $1,689.
 
C) $1,621.
 
D) $1,680.

Baran

The  correct answer is D
The formula is: 1650e(0.024)(270/360) = 1,679.97, or $1,680.

Baran

2、Using the continuous time forward pricing model, what is the no-arbitrage price of a 3-month forward contract if the interest rate is 3.2 percent and the spot price of the asset is $750?

A) $780.
 
B) $756.
 
C) $744.
 
D) $729.

Baran

The  correct answer is B
The formula is: F0 = S0erT. Using this formula we calculate the forward price as 750e(0.032)(0.25) = $756.

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