Answer: $83.26 and $3.20

First compute the updated forward price for delivery at \(T=1.0\) using the spot price at \(t=0.25\): \[ F(0.25,1.0)=S_{0.25}e^{r(T-t)} =84\,e^{0.04\times 0.75} =84e^{0.03} \approx 86.56 \] The original fair delivery price established at inception was: \[ F(0,1.0)=80e^{0.04}=83.26 \] The value of the original long forward contract after 3 months is: \[ f_{0.25}=\big(F(0.25,1.0)-F(0,1.0)\big)e^{-r(T-t)} \] \[ = (86.56-83.26)e^{-0.03} \approx 3.20 \] So the correct pair is: - Updated forward price: **$86.56** - Value of original forward: **$3.20** **Correct answer: D**

Author: Manit Arora