1. Complete each of the following: (a) Show that futures hedging is risky. [6 marks] (b) Show that the risk averse investor requires a positive risk premium. [6 marks] (c) Using your answer in Part (b) above, determine the type of risk premium required by the risk neutral investor. [3 marks] (d) Show that the result in Part (b) above maximizes the investor's expected utility. [4 marks] (e) Fully explain why an agent will have an optimal hedge ratio of 1.5 under forward hedging. [4 marks] Using an expected utility framework, derive the risk averse agent's optimal hedge positions (relative to output) under forward contracts (Hint: Use a similar procedure to Part (b) above). [14 marks]