The risk$-$free interest rate is $3\%$ annualized and

continuously compounded. Assume the market is frictionless. When you plot the forward

curves below, you may choose to either $($i$)$ use the analytical expression of the forward curve

to plot it accurately and smoothly, or $($ii$)$ find forward prices for T$=0,0\mathrm{.}25,0\mathrm{.}5,0\mathrm{.}75,1,$ and

linearly interpolate between adjacent points.

$($a$)$ Plot the forward curve for stock forward contracts with the underlying stock paying

no dividends. The current underlying stock price is $$10$ per share. $(3)$

$($b$)$ Plot the forward curve for currency forward contracts with a constant foreign interest

rate of $5\%,$ annualized and continuously compounded. The current price of foreign

currency is $$8$ per unit. $(3)$

$($c$)$ What do the shapes of forward curves in $($a$)$ and $($b$)$ tell you about how the underlying

asset prices will change in the future? Discuss. $(2)$