(Answered) Suppose that a0 100 and a1 105 dollars the present price

Finance

Suppose that A(0) = 100 and A(1) = 105 dollars, the present price of pound sterling is S(0) = 1.6 dollars, and the forward price is F = 1.50 dollars to a pound with delivery date 1. How much should a sterling bond cost today if it promises to pay £100 at time 1? Hint: The forward contract is based on an asset involving negative carrying costs (the interest earned by investing in sterling bonds).

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