Question 1. [Forward Contract Positions and Payoffs] Complete Steps (1), (2), and (3) below based on your own calculations and answers. Step (1) Assume that K is the Delivery Price (or Forward Price), calculate the payoffs to each of the following Forward contract positions at delivery/maturity date (Time T): Case (A) Long Forward contract with Delivery Price (K = $30) and Spot Price at Delivery Date (ST = $22). Case (B) Short Forward contract with Delivery Price (K = $30) and Spot Price at Delivery Date (ST = $22). Hint: Payoff to Long Forward (at delivery date T) is calculated as [ST K]. Payoff to Short Forward (at delivery date T) is [K ST] or [ST K]. See our class examples provided in Class #3 Presentation (Reviewer Exercise 1 and 2); see also Class #3 Whiteboard document in Blackboard.

Step (2) In addition, draw the payoff diagram of the Long Forward position in Case (A) above; and draw the payoff diagram of the Short Forward position in Case (B) above. Note: you may draw the payoff diagrams and attached the pictures in your homework submission. Hint: See class examples in Class #3 Presentation (Reviewer Exercise 1 and 2); see Class #3 Whiteboard document. Step (3) Based on the results of Case (A) and Case (B) above, is the Forward contract a Zero-Sum Game? Please explain your answer.