1. Please use a position in the underlying asset and cash borrowing or lending at risk-free rate to construct a replicating portfolio for a short forward contract with maturity time T. Assume the current spot price of the underlying asset is S₀. The continuously compounded risk-free rate for any time period is r. Please show the payoff of your replicating portfolio at time T, and the forward price of the forward contract you replicate. (4 points)

2. Consider at-the-money European call option on a stock with 6-month to expiration. Current stock price is $300; and the stock does not pay any dividend in 6-month. Interest rate is 10%. The call option premium is $11.93. Is there an arbitrage opportunity? If yes, please describe your strategy, your cash flow, and your profit in 6-month. (4 points)