Question

The spot price of an investment asset that provides no income is $32.10 and the risk-free rate for all maturities (with continuous compounding) is 6.25%. What is the 4-year forward price? Answer with two decimal digits accuracy. Example: 52.12

Answer 1

$41.22

Step-by-step explanation:

Forward price = Spot price*(1 + Risk free rate)^Time of contract

Continuous compounding rate = e^(0.0625) = 1.06449445892 = 1.0645

Forward price = $32.10 * (1.0645)^4

Forward price = $32.10 * 1.28405215218

Forward price = $41.2180741

Forward price = $41.22

So, the 4-year forward price is $41.22.