Consider a forward contract on some asset A, with a delivery date of T years from now. Let to be the current date when the forward contract is entered. There is a risk- free bond, B, offering a rate of R per annum, continuous compounding. The current spot price of asset A is So. a. (6 points) Let K be the forward price of the asset which is negotiated at to. Show that K must be: K-ST. Explain carefully and show how arbitrage can be achieved if K is not Soer, and also explain how prices will adjust to restore K to Soe b. (6 points) Suppose the current price of asset A is So. T years from now, asset A will have only two states, state 1 where the price of A is So D, and state 2, where the price of A is So U, 0