Share A is currently priced at $110 while share B is priced at $102. A hedge fund analyst has noticed that the gap between the two prices in the past has been mostly around $10. The hedge fund currently does not hold any positions in the two shares.

a. Describe the strategy that the hedge fund should pursue at once (t=0) if it believes in the forecast of its analyst. Explain your answer.

b. Assume the hedge fund is fast enough in arranging the borrowing of shares to benefit from the prices mentioned above. 7 days after the implementation of the strategy described in a, share A is priced at $108 while share B is priced at $103 and the hedge fund undoes the positions taken previously. Represent on a time line the part of the strategy that uses short-selling. All transactions involved should appear, including the transactions with the original owner of the shares. Settlement occurs 2 days after trading (T+2).

c. Draw the table of cash flows associated with the hedge fund's strategy for the prices defined in b and for a bought quantity of shares X. Calculate the return of the hedge fund's strategy over the week. We assume that the security borrowing fees are equal to zero and that settlement occurs 2 days after trading (T+2).

d. Check whether the strategy is market neutral.