4. Suppose the effective annual interest rate is 10% and the S&R index is 1000. Consider

1-year forward contracts.

(a) Verify that if the forward price is $1100, the profit diagrams for the index and the

1-year forward are the same.

(b) Suppose you are offered a long forward contract at a forward price of $1200. How

much would you need to be paid to enter into this contract?

(c) Suppose you are offered a long forward contract at $1000. What would you be

willing to pay to enter into this forward contract?