2. (a) A security is expected to pay a coupon of 5 in two months and 5 in five months. The security price is 220 and r = 3.5% per annum for all maturities. An investor has taken a short position in a 6-month futures contract on the stock. What are the futures price and initial value of the futures contract?

(b) Three months later, with r still at 3.5%, the security price is 208. Calculate the value of the short position in the futures contract. If an investor observes that the value of the short position is quoted as 10, how can a riskless profit be made?