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12.
(1 points)
(12.1)
Should the one-year forward price of ABC be lower than the one-year forward price of
XYZ? Why?
(1 points)
(12.2)
Suppose the one-year forward prices for ABC and XYZ are both $13. Assume that ABC is
expected to depreciate to $10 in a month and XYZ is expected to appreciate to $15 in a
month. What is your expected payoff in one year if you short one share of ABC forward
and long one share of XYZ forward? Is it possible for you to lose money?
(3 points)
(12.3)
If the one-year forward price of ABC is $11 per share and the one-year forward price of
XYZ is $14 per share, find the arbitrage strategy assuming that you may buy or sell only 1
share of ABC in the spot market. Describe your action now and in one year. Will you ever
lose?
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