Please help me answer problems #6 and #7. I am having trouble answering the parts.

Home work 1, due on or before March 20th, please submit through canvas. 1. Today an investor enters into a short forward contract to buy 1 ounce of gold in 12 months at price 1200. Today the gold price is 1150. Suppose in 12 months, the gold price is either 1300 or 1100. (5 points each) 1) What are the values of S0, F0,T, and ST in this example? 2) What are the payoffs the short forward contract in the two scenarios? 3) What are the payoffs of the long forward contract in the two scenarios? 2. Today investor enters into a contract that gives the right to sell stock A at 50HKD a share two month after today. (5 points each) 1) What is the name of the contract? 2) Does the investor buy or sell the contract? 3) What will the investor do of after two month ST=60, what will the other party do? 4) What will the investor do if after two months ST=40, what will the other party do? 5) At which price range of ST, the investors will choose to sell the stock A at 50? 3. What is the No-Arbitrage Principle? (NAP), what does it imply? (10) 4. An investor with $3,000 to invest over the next 2 months. The current stock price is $30. The price of a 2-month call option with a strike of $30 is $1.5, and the price of a 2-month put option with a strike price of $30 is 1.8. Please fill out the table below (36 points) ST=28 Payoff per security ST=29.5 net return Payoff per security net return ST=30 Payoff per security net return buy call buy put buy stock ST=30.2 Payoff per security net return ST=32 Payoff per security net return ST=36 Payoff per security net return buy call buy put buy stock 5. An export company located in Hong Kong is going to sell textiles to Germany. The company expects to receive 10 million Euros after 9 months. To hedge against Euro depreciation after 9 months, what should the company do, sell Euro forward or buy Euro forward? ( 4 points) 6. Suppose today is the end of 2015 November, an investor had 1,000,000 shares of Chow Sang Sang stock. She worries that the stock price may decline in the next two months, and would like to hedge her stock position with 3-month Hang Seng Index futures, or 3 month gold futures. She will liquidate her positions (sell stocks and close futures) in the end of January 2016. The excel file has the end of month prices for Hang Sang index, Chow Sang Sang stock and Gold. The attached PDF files contain the contract specifications of Hang Seng Index futures and Gold futures. Assume (1) in the end of 2015, the 3 month future's prices on Hang Seng index and gold are same as their spot prices, (2) change (or the return) of futures price can be estimated by the change (or return of the spot prices), and (3)the exchange rate of HKD and USD is fixed at 7.76HKD=1USD. Please use all the historical data to calculate. (5 points each) (1) In the end of 2015 November, which futures contract, Hang Sang Index or Gold, would you recommend her to short to hedge the 1000000 shares of Chow Sang Sang stock? Why? (please use return to compute) (2) In the end of 2015 November, how many contracts does she need to short? (use return to compute) (3) In the end of 2016 January, how much value of her wealth change relative to end of November 2015 if she hedges with Hang Seng Futures? (use return to compute) (4) In the end of 2016 January, how much value of her wealth change relative to end of November 2015 if she hedges with Gold futures? (use return to compute) (5) Bonus question: (zero credit) what are the answers for (1)-(4) if price changes are used in compute hedge ratio and optimal number of contract. Which one should we use, return or price change? Note: _ = ( , ) _ = ( , ) ( ) ( ) ( ) ( ) 7. You are working on the trading desk at a large, highly-rated investment bank. You have the following prices available to you: (5 points each) Spot dollar/pound Exchange Rate: 1.5943 $/ (1=1.5943$) 3-month Forward dollar/pound Rate 1.5857 $/ The 3-month US (dollar) risk-free rate is 1.25%. (Interest rates are quoted in annualized, continuously-compounded form.) a. If there are no transaction costs, and you can either buy or sell at these exchange rates and borrow or lend at these interest rates, what must the 3-month British (pound) interest rate (annualized, c.c.) be for there to be no arbitrage? b. Under the same assumptions, suppose that the annualized, continuously-compounded 3-month sterling interest rate is 3.5%. Describe exactly what transactions you would undertake at these prices/rates to lock in an arbitrage profit. c. Now suppose the British rate is the one you calculated in (a) and that there is a 10 basis point(0.1%) bid/ask spread around both that rate and the U.S. rate (e.g. You can borrow at 1.30% and lend at 1.20%). The spot exchange rate is 1.5940-1.5947. Compute the lower and upper no-arbitrage bounds for the 3-month forward