Question below:

1 Today you have a short forward position past initiation on the S&P 500 index with delivery $3,400 in 4 months. The interest rate is 5%, monthly compounded. The dividend yield on the index is 3% paid continuously. (a) (7 points) Calculate the value of your forward position. Explain the rationale of your calculation- do not just apply a canned formula. (b) (7 points) Explain how you would hedge your short forward position by trading in the spot market for the S&P index. What, if any, adjustments do you need to make in your hedged position if the forward price increases tomorrow? (c) (7 points) Explain how you would hedge your short forward position by using forward contracts. What, if any, adjustments do you need to make in your hedged position if the forward price increases tomorrow? (d) (7 points) Explain how you would hedge your short forward position by using futures contracts. What, if any, adjustments do you need to make in your hedged position if the forward price increases tomorrow? (e) (7 points) Explain how you would hedge your short forward position by using European call and put options on the index. What, if any, adjustments do you need to make in your hedged position if the forward price increases tomorrow