6.8.

a. Suppose that you want to borrow a widget beginning in December 2004 and ending in March 2005. What payment will be required to make the transaction fair to both parties?

b. Suppose that you want to borrow a widget beginning in December 2004 and ending in September 2005. What payment will be required to make the transaction fair to both parties?

a. Suppose the March 2005 forward price were $3.10. Describe two differ- ent transactions you could use to undertake arbitrage.

b. Suppose the September 2005 forward price fell to $2.70 and subsequent forward prices fell in such a way that there is no arbitrage from September 2005 and going forward. Is there an arbitrage you could undertake using forward contracts from June 2005 and earlier? Why or why not?

 LO.1