The spot price of an asset is $50. The expected return on the asset is 10% a year (in simple terms) and the standard deviation of these returns is 20%. The risk-free rate of interest is 5% a year in simple terms. Assuming no costs or benefits of carry, what is the one-year forward price of the asset?
A) $52.50
B) $55.00
C) $57.50
D) $60.00

Question

The spot price of an asset is $50. The expected return on the asset is 10% a year (in simple terms) and the standard deviation of these returns is 20%. The risk-free rate of interest is 5% a year in simple terms. Assuming no costs or benefits of carry, what is the one-year forward price of the asset? 
A) $52.50
B) $55.00
C) $57.50
D) $60.00

Quizplus · Accepted Answer

The one-year forward price of an asset is calculated using the formula: Forward Price = Spot Price * (1 + Risk-Free Rate). Here, it is $50 * (1 + 0.05) = $52.50.

The Spot Price of an Asset Is $50