1. (15 points) Suppose that you want to short sell 500 shares of ABC company over the next 90 days. Its current share price is $ 78 and a $ 2.4 cash dividend will be paid in next 25 days.

(a) (5 points) What will be the value of your short position in 90 days, assuming risk-free rate is 3%. Assume that the share price in 90 days is $ 72.

(b) (10 points) Short-selling by individuals is very costly. However, suppose that there is a individual stock futures listed on the exchange. Assume that in place of short selling ABC's shares, you are able to sell 90-day futures on ABC shares. Prove that in 90 days will be the same as in part (a) assuming no costless arbitrage opportunities are available in the market place.