Question 6 (Forward and Futures Prices) - (15 Marks) Part A 10 Marks) Consider a stock with a current price of $50. The stock will pay quarterly dividends of $0.50 starting 3 months from now. The risk-free rate of interest (continuously compounded) is 1.75% for all maturities. a) What should the forward price of an 8-month contract be? b) Now suppose you found a contract offering a forward price of $55. Is there an arbitrage opportunity? If yes, explain in detail what you would do to exploit the arbitrage opportunity and calculate the ultimate profit you would realize. If no, explain. Part B (5 Marks) We discussed about the forward curve (i.e. a series of consecutive month's prices for future delivery of an asset) for NYMEX HO (i.e. heating oil) and NYMEX Natural Gas. What is the significance of the forward curve? What should the forward curve look like for each of these two commodities