Make an assumption that a security that you own is currently worth K800 and you plan to sell it in two months’ time. Thi

[answerhappygod]

Make an assumption that a security that you own is currently
worth K800 and you plan to sell it in two months’ time. This is to
create hedge against a possible decline in price during the next
two months. A forward contract is negotiated to sell the security
in two months at a risk-free rate of return of 4%.
a. What’s the forward price on this contract?
b. What if the dealer proposes to go into a forward
contract at K698? How would you earn an arbitrage profit.
c. If a after one month, the security sells for k690. What
would be the gain or loss to the position you took.