Suppose that toothpicks cost 1 cents today and for certain will cost 1 cents in 1 year. This can happen, for example, if the supply of toothpicks is perfectly elastic. Suppose also that the continuously compounded interest rate is 10%. (a)What is the forward price of a toothpick to be delivered in 1 year? Clearly explain your logic in answering this question. (b) Show that the forward price you derived in the previous point does not admit arbitrage opportunities.

(c) Discuss how the forward price you derived above depend on the current spot price for toothpicks.