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Question
The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The market index rises to $920 by the expiration date. The annual rate of interest on treasuries is 2.4% (0.2% per month). What is the difference in the payoffs between a long index investment and a long forward contract investment? (Assume monthly compounding.)A) $10.84
B) $24.59
C) $26.40
D) $43.20
Answer
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