(a). The spot price of the market index is $1000. A 6-month forward contract on this index is

priced at $1030. What is the payoff to a short position if the spot price of the market index

rises to $1020 by the expiration date? (2)

(b). The spot price of the market index is $1000. A 6-month forward contract on this index is

priced at $1030. What is the payoff to a short position if the spot price of the market index

rises to $1080 by the expiration date? (2)

(c). The spot price of the market index is $1000. You hold a European put option on the index

with a strike price of $1030 that expires in 6-months. Will you exercise the put if the spot

price of the market index rises to $1020 by the expiration date? Why? (3)

(d). The spot price of the market index is $1000. You hold a European put option on the

index with a strike price of $1030 that expires in 6-months. Will you exercise the put if the

spot price of the market index rises to $1080 by the expiration date? Why? (3)