Bill wishes to buy a security in 9 months thats currently worth $95. To hedge against the price going up he goes long on the fwd contract that expires in 9 months. Rf = 4%
The no arbitrage price is $97.84 = 95 (1.04 ^270/365)
If at contract maturity, the price of the asset is $100, the overall gain/loss to Bill on the entire transaction (spot & fwd) is…?
The book says its the gain on the fwd $100-97.84=2.16 and the loss on spot = 100-95 = -5
Total is -2.84 loss.
Why would the spot even be a factor here since he bought the fwd and did not sell short the stock. ??