A futures contract is written on a stock. The maturity of the contract is 6 months. The stock price is $50 today and the risk-free rate is 10% per year with continuous compounding (1) What should the futures price for this contract be? (2) Suppose that the futures price for this contract quoted by Trader A is $51.56, is the futures contract under-valued or over-valued? Explain your answer. What arbitrage opportunity does this create? Use the following table to show your positions (in the futures contract, the underlying asset and cash account) on date t (today) and the expiration day T. Assume that the stock price on the expiration day T is $70. Action Cash Flow at t Cash Flow at T 1: (hint: long or short the stock?) 2: (hint: long or short the forward contract? 3: (hint: borrow or lend?) Total (3) Does your answer (e.g., the arbitrage profit) in (2) change if the stock price on the expiration day is $40 instead of $70? Explain your answer. A futures contract is written on a stock. The maturity of the contract is 6 months. The stock price is $50 today and the risk-free rate is 10% per year with continuous compounding (1) What should the futures price for this contract be? (2) Suppose that the futures price for this contract quoted by Trader A is $51.56, is the futures contract under-valued or over-valued? Explain your answer. What arbitrage opportunity does this create? Use the following table to show your positions (in the futures contract, the underlying asset and cash account) on date t (today) and the expiration day T. Assume that the stock price on the expiration day T is $70. Action Cash Flow at t Cash Flow at T 1: (hint: long or short the stock?) 2: (hint: long or short the forward contract? 3: (hint: borrow or lend?) Total (3) Does your answer (e.g., the arbitrage profit) in (2) change if the stock price on the expiration day is $40 instead of $70? Explain your