1 (20 points) Short Questions (Please briefly explain your answers.) (i) (5 points) The 1 year forward on a stock trades at $102, while the spot price of the stock is $100. The continuously compounded annual interest rate is 4%. What is the annual dividend yield consistent with these prices? You need to show clearly how to calculate the dividend yield. (ii) (5 points) True or False? In a foreign exchange forward contract, the value of the forward contract is always non-negative. Write down the formula for the value of a foreign exchange forward contract and explain clearly how you get the answer. (iii) (5 points) Suppose you expect to receive $100 in one year and want to use FRA to hedge the interest rate risk between year 1 and year 2. Should you take a long position or short position? Why? (iv) (5 points) Consider an at-the-money European call option and an at-the-money Eu- ropean put option on the same non-dividend paying stock. Which one should have a higher market value? Explain clearly why this is the case