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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?
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
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