7.7. Assume that forward contracts to purchase one share of Sony and Disney for $100 and $40, respectively, in one year are currently selling for

$3.00 and $2.20. Assume that neither stock pays a dividend over the coming year and that one-year zero-coupon bonds are selling for $93 per $100 of face value. The current prices of Sony and Disney are $90 and $35, respectively.

a. Are there any arbitrage opportunities? If so, describe how to take advantage of them.

b. What is the fair market price of a forward contract on a portfolio composed of one-half share of Sony and one-half share of Disney, requiring that $70 be paid for the portfolio in one year?

c. Is this the same as buying one-half of a forward contract on each of Sony and Disney? Why or why not? (Show payoff tables.)

d. Is it generally true that a forward on a portfolio is the same as a portfolio of forwards? Explain.