6.

Suppose that the pension you are managing is expecting an inflow of funds of $1 billion

next year and you want to make sure you will earn the current interest rate of 5% when

you invest the incoming funds in long-term bonds.

a.

How would you use the options market to ?

(4 marks)

b.

How would you use the futures market to ?

(4 marks)

c.

What are the advantages and disadvantages of using a futures contract rather than

an option contract?

(2 marks)