# Derivatives - Derivatives Section 2

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• Option : B
• Explanation : The fund manager entered into a contract to sell the stock to HBL at PKR 250 per share in 3 months’ time. 35,000 * PKR 250 = PKR 8,750,000. Option B is correct because it is a deliverable contract. If it was a cash settled contract, then option C would be correct.

• Option : C
• Explanation : Since it is a cash settled contract, the fund manager will receive 35,000 * PKR (250 - 200) = PKR 1,750,000. Option B is correct only if it is a deliverable contract.

• Option : B
• Explanation : The value of a forward contract prior to expiration is the value of the asset minus the present value of the forward price.

• Option : C
• Explanation : How the investor feels about risk is irrelevant, because the forward price is determined by arbitrage.

• Option : B
• Explanation : The convenience yield and interest income are benefits of holding the asset which are subtracted from the compounded spot price and reduces the commodity’s forward price. The opportunity cost is the risk-free rate, which increases the commodity’s forward price.

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Derivatives Section 2