A security is currently worth $225.An investor plans to purchase this asset in one year and is concerned that the price may have risen by then.To hedge this risk,the investor enters into a forward contract to buy the asset in one year.Assume that the risk -free rate is 4.75 per cent.
a) Calculate the appropriate price at which this investor can contract to buy the asset in one year.
b) Four months into the contract,the price of the asset is $250.Calculate the gain or loss that has accrued to the forward contract.
c) Assume that eight months into the contract ,the price of the asset is $200.Calculate the gain or loss on the forward contract.