Final answer:
The Forward Price is calculated using the given formula and the provided values for S0, t, r, λ, and c. After plugging these into the formula, the Forward Price is obtained as approximately 16.818.
Step-by-step explanation:
The student has provided a formula for calculating the Forward Price (F0,T) of a financial derivative and has given the variables needed to solve it. To calculate the Forward Price, we need to insert the given values into the formula F0,T = S0e (r+ λ –c)t, where:
- S0 is the current price of the underlying asset, which equals 10.
- t is the time in years until contract delivery, which equals 4.
- r is the risk-free annual interest rate, which is 0.075 (or 7.5%).
- λ is the annual yield of the underlying asset, which is 0.055 (or 5.5%).
- c is the annual cost of carry of the underlying asset, which is 0 in this case.
Plugging these values into the formula, we get:
F0,T = 10 * e(0.075 + 0.055 - 0)t
F0,T = 10 * e(0.075 + 0.055)t
F0,T = 10 * e(0.13 * 4)
F0,T ≈ 10 * e0.52
F0,T ≈ 10 * 1.6818
F0,T ≈ 16.818
Thus, the Forward Price is approximately 16.818.