Question: PROBLEM 1: You have access to 3 instruments: an asset, a forward contract, and a zero-coupon bond. You can buy (go long) or sell

PROBLEM 1: You have access to 3 instruments: an asset, a forward contract, and a zero-coupon bond. You can buy (go long) or sell

PROBLEM 1: You have access to 3 instruments: an asset, a forward contract, and a zero-coupon bond. You can buy (go long) or sell (go short) each of these, for a total of 6 (= 3 x 2) instruments. Using "generic" cash flow notation (So, St, etc.) and the grids below, show how you would combine two of these instruments to create synthetic cash flows equivalent to: Long Asset ("outright purchase") Short Asset ("outright sale") Long Forward Short Forward Long Zero-Coupon Bond ("lend") Short Zero-Coupon Bond ("borrow") For each entry in the Transaction column, be sure to show which investment you are using and whether you are buying or selling. Transaction: Total Cash Flow for Synthetic Long Asset: Transaction: Total Cash Flow for Synthetic Long Forward: Time 0 cash flows: Time t cash flows: Time 0 cash flows: Time t cash flows: Transaction: Time 0 cash flows: Time t cash flows: Total Cash Flow for Synthetic Short Asset: Transaction: Total Cash Flow for Synthetic Short Zero- Coupon Bond: Transaction: Total Cash Flow for Synthetic Short Forward: Time 0 cash flows: Time t cash flows: Time 0 cash flows: Time t cash flows:

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