Derivatives Q70

70A portfolio manager is required to buy 25,000 shares of Biz Corp. in a month. She fears that the price will rise during the coming month, so she contacts a dealer and enters into an equity forward contract to buy 25,000 shares of Biz Corp. at $20 a share. When the contract expires, the price is $22 per share. At expiration who benefits and by how much?

Option : A
Explanation : Since the portfolio manager takes a long position and the price goes up, she benefits. The benefit is 25,000 * (22 – 20) = 50,000.

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