15. Forwards and Futures I[9 points ] Knowing you have taken finance counses, your neighbor Sean, who is a wheat farmer in Edimonton, is asking for your help. He is expecting to sell whent in 9 months and is worried that wheat price may fall, which will definitely reduce the protit. You learned from him that the current price for wheat is $9.4 per bushel and interest rates are at 4%. In addition, the storage cost of wheat is $0.2 per bushel, paid today. (a) [3 points] Should Sean long or short forward contract to hedge the prioe risk of what? Explain it clearly. (b) [3 points] What is the 9-month forward price of whent? (c) [3 points] Sean told you the wheat price in 9 month may take the following values ($9,59.1, $9.2,$9.3,59.4,$9.5,$9.6$9.7,$9.8). Prove to Sean that be could effectively well wheat at the forward price you conputed in (b), regardless of the wheat price realized in 9 months. 16. Forwards and Futures II [ 7 points] Consider a 2-year forward contract on a security that is expected to pay a 81 dividend in 1 year and $6 dividend in 2 years (just before the contract matures), and $10 dividend in 5 years. The term structure is flat 5% (EAR). The spot price of the security is $30. (a) [3 points] What is the fair forward price? (b) [3 points] Suppose that the contract stipulates an unfair forward price of $25. How-much would you noed to pay today to enter into this contract as the long side? 10 (c) [1 points] Suppose that the contract stipulates an unfair forward price of \$28. How moch would you need to pay today to enter into this contract as the short side