Net cost of asset when forward contract expires after intend to buy asser The ca

Question

Net cost of asset when forward contract expires after intend to buy asser The cash price today, at tio, of an asset is S 12,896, the tisktee-3%. The forward price for delivery one year hence (at t-1) is the no-arb price. Assume that you go long the forward contract today. At t 0.75, the spot price of the asset is S13,546. We sell the forward contract at t-0.75, for its fair market value and purchase the asset at the spot price. What is the net cost of the asser (net the spot price you pay against the gain or loss on the forward contract)? 23.

Explanation / Answer

Profit on forward=(13546*e^(3%*0.25)-12896*e^(3%*1))=359.2352656

Net cost of the asset=13546-359.2352656=$13186.76473

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