(a) Suppose you enter into a long 6-month forward position at a forward price of $60....

(a) Suppose you enter into a long 6-month forward position at a forward price of $60. What is the payoff in 6 months for prices of $50, $55, $60, $65, and $70?

(b) Suppose you buy a 6-month call option with a strike price of $60. What is the payoff in 6 months at the same prices for the underlying asset?

(c) Comparing the payoffs of parts (a) and (b), which contract should be more expensive (i.e. the long call or long forward)? Why?

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Expert Solution

jeff jeffy answered 1 year ago

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