Explanation:
A forward contract is a linear derivative whose value is given by:
S is the current asset price, and PV(K) denotes the present value of the asset's future price.
So in this, the value is given by:
500` - 800(1.05)^{-2} = -225.62$$
Q.4673 An investor considers investing in a forward contract to buy an asset currently valued at USD 500 for USD 800 in 2 years. Given that the current interest rate is 5% with annual compounding, what is the current value of the forward contract?
A
346.49
B
-225.62
C
235.62
D
-220.45
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