How much would you need to be paid to enter

Reference no: EM132194304

Question - An off-market forward contract is a forward where either you have to pay a premium or you receive a premium for entering into the contract. (With a standard forward contract, the premium is zero.) Suppose the effective annual interest rate is 10 % and the S&R index is 1000. Consider 1-vear forward contracts

(1) Verify that if the forward price is S 1100, the profit diagrams for the index and the 1-year forward are the same.

(2) Suppose you are offered a long forward contract at a forward price of S 1200. How much would you need to be paid to enter into this contract?

Reference no: EM132194304

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