created, which is typical in derivative contracts.

Example of how forward prices should be agreed upon

Continuing on the example above, suppose now that the initial price of Alice's house is and that Bob enters into a forward contract to buy the house one year from today. But since Alice knows that she can immediately sell for and place the proceeds in the bank, she wants to be compensated for the delayed sale. Suppose that the risk free rate of return R (the bank rate) for

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