I really don’t understand the rationale for the answer below.
thank you so much for your time.
The contract price of a forward contract is:
A) always the present value of the expected future spot price. B) the price that makes the contract a zero-value investment at initiation. C) determined at the settlement date.
Your answer: A was incorrect. The correct answer was B) the price that makes the contract a zero-value investment at initiation.
The contract price can be an interest rate, discount, yield to maturity, or exchange rate. The forward price is the future value of the spot price adjusted for any periodic payments expected from the asset. An example of when the forward price may be less than the spot price is in the case of an equity index contract where the dividend yield is greater than the risk-free rate.