CFA Level I · CFA Level I Exam · Forward Commitment and Contingent Claim Features and Instruments
An investor enters a long forward contract to buy an asset at 50. At expiration the asset price is 56. The investor's payoff at expiration is closest to:
The payoff is about 6, found as the spot price at expiration of 56 minus the agreed forward price of 50. The long position gains when the asset ends above the contract price. A payoff of -6 would belong to the short party.
- A-6
- B0
- C6Correct
Explanation
A long forward payoff equals the spot price at expiration minus the forward price: 56 - 50 = 6. A sign error gives -6. The value 0 would apply only if the spot equaled the forward price, or to a short position's offsetting view.
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