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Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the

Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%.

(a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55.

(b) Is there any advantage to investing in the stock or the forward contract? Why?

Now is there any advantage to investing in the stock or the forward contract?

Why?

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