What is the amount of credit risk

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Reference no: EM132073238

A share of stock is currently worth $68.60. An investor enters a short position on a 6-month forward contract on the P&G stock with a dealer. The risk-free rate is 4% APR semi-annual compounding. (Assume discrete compounding.)

• Two months later, the price of the stock declines to $65.85. Answer the following questions: (a) Who bears the credit risk? (b) Is this current credit risk or potential credit risk? (c) What is the amount of credit risk?

• Alternatively, suppose that two months later the price of the stock increases to $72.30. Answer the following questions: (a) Who bears the credit risk? (b) Is this current credit risk or potential credit risk? (c) What is the amount of credit risk?

Reference no: EM132073238

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