Financial DerivativesTU Board 2021
A forward contract on silver has one year to expiration. The spot price of silver today is Rs 1,500 per Tola. It requires annual storage cost of Rs 50 per Tola payable in two installments after each…
10A forward contract on silver has one year to expiration. The spot price of silver today is Rs 1,500 per Tola. It requires annual storage cost of Rs 50 per Tola payable in two installments after each six months. Interest rate is currently 8 percent per annum. One contract on silver covers 100 Tola.
a. Find the forward price of silver today. b. Show arbitrage strategy if market price of forward contract is Rs 1,625. c. What is the initial value of forward contract? d. Assume it is 3 months after the contract was entered into. The spot price of silver now is Rs 1,350 per Tola and risk-free rate now is 8 percent per annum. What are the forward price and value of short forward contract now?
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