A share of stock is currently worth $68.60. An investor enters a short position on a 6-month forward contract on the P&G stock with a dealer. The risk-free rate is 4% APR semi-annual compounding. (Assume discrete compounding.)
• Two months later, the price of the stock declines to $65.85. Answer the following questions: (a) Who bears the credit risk? (b) Is this current credit risk or potential credit risk? (c) What is the amount of credit risk?
• Alternatively, suppose that two months later the price of the stock increases to $72.30. Answer the following questions: (a) Who bears the credit risk? (b) Is this current credit risk or potential credit risk? (c) What is the amount of credit risk?