pg. 47 of study session 16. 4D
A security is worth $225, wants to purchase asset one year from now. Rf is 4.75%
Price of forward = 235.69
Question D: The price of the asset is $190. Calculate the value of the forward contract at expiration.
Value = Spot - Price of forward
Value = 190 - 235.69 = -45.69
- a gain of asset of $35…(225-190)
Net loss = -10.69
My question: Why is there a gain of asset? Do I just assume that you sell the asset in the beginning? If so wouldn’t you invest the proceeds at the risk free rate and make this entire thing more complicated? Maybe someone just needs to explain to me the sequence of events that is making this happen as if this were actually you.