An asset is priced at $100. A two-year forward contract is created, with mark-to-market in one year (Month 12). The risk-free rate is 2%. The asset is worth $105 in Month 12.
1. What is the amount of the credit risk at Month 0?
a) $0
b) $2
c) $3
d) $5
2. What is the amount of the credit risk at Month 12?
a) $0
b) $2
c) $3
d) $5
3. Who bears the credit risk at Month 12?
a) The long
b) The short
4. What is the reset price of the forward at Month 12?
a) $100
b) $104.04
c) $105
d) $107.10