A short

forward contract that was negotiated some time ago will expire in three months

and has a delivery price of $40. The current forward price for three-month

forward contract is $42. The three-month risk-free interest rate (with

continuous compounding) is 8%. What is the value of the short forward contract?

A speculator can choose between buying 50 shares of a stock for $20 per share and buying 500 European call options on the stock with a strike price of $22.5 for $2 per option. For second alternative to give a better outcome at the option maturity, the stock price must be above

A $150

million interest rate swap has a remaining life of 9 months. Under the terms of

the swap, six-month SOFR is exchanged for 5% per annum (compounded

semi-annually).

The basis is defined as spot minus futures. A trader is hedging the sale of an asset with a short futures position. The basis increases unexpectedly. Which of the following is true?

What should a trader do when

the one-year forward price of an asset is too low? Assume that the asset

provides no income.

An investor sells a futures contract on an asset when the futures price is $2,000. Each contract is on 500 units of the asset. The contract is closed out when the futures price is $2,005. Which of the following is true