Final answer:
The two-year forward price of an investment asset with a current spot price of $1,000 and a risk-free rate of 5% (with continuous compounding) is approximately $1105.17.
Step-by-step explanation:
The two-year forward price of an investment asset can be calculated using the formula for forward price F=S*e^(r*t), where S is the current spot price, r is the continuous risk-free rate, and t is the time to maturity in years. In this question, S is $1,000, r is 5%, and t is 2 years.
The calculation is as follows:
- F = 1000 * e^(0.05*2)
- F ≈ 1000 * e^0.10
- F ≈ 1000 * 1.105170918
- F ≈ $1105.17
Therefore, the two-year forward price of the asset is approximately $1105.17.
Plugging in these values into the formula:
Forward Price = $1,000 * e^(0.05 * 2)
Using a calculator, the forward price is approximately $1,103.64.