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What is the value of an index forward contract 2 months prior to its expiration from...

What is the value of an index forward contract 2 months prior to its expiration from the SHORT position's view, if the index's level is 313 and the forward's agreed upon price is 307? You also know that the log risk free rate is 4% and the index's log dividend yield is 2%

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Answer #1

The value of the contract can be calculated using the formula below:

Ft = 313 * exp ( (4% - 2%) * (2/12) ) = 314.05

The value of the forward contract for the long position if current value of contract - forward agreed upon value

i.e. Value for long = 314.05 - 307 = 7.05

So, value for short = -1 * value for long = -7.05

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