a. John buys a call option with a strike price of 79 for 7.9. Explain under what circumstances John would decide to exercise the option and lose money on the overall stock-plus-option position. b. A trader takes a short position in a one year forward contract on a 30-yearTreasury Bond. The Treasury Bond to be delivered in 1-year is assumed to have an 8% coupon rate and a par value of 100. Suppose the 1-year forward price on the bond is $125. Construct a strategy from which an investor can earn a riskless profit. (Use a flat term structure, with a continuously compounded annual return of 6%)