Question 2. Assume that a financial asset is currently priced at S200. The risk-free rate is 5 percent. a. A dealer offers a contract in which the forward price of the asset with delivery in three months is $205. Explain the transactions you would undertake to take advantage of the situation. (Solution: forward contract is overpriced, sell the forward contract and buy the securiry now. Doing so will yield an arbitrage profit of $2.55) b. Suppose the dealer were to offer you a contract in which the forward price of the asset with delivery in three months is S198. Explain the transactions you would undertake to take advantage of the situation. (Solution: forward contract is underpriced, buy the forward contract and sell the security now. Doing so will yield an arbitrage profit of S4.45)