Q2 (forward pricing, the basic case) Suppose you are a market-maker in S\&R index forward contracts. The S\&R index spot price is 1100 . the risk-free rate is 5%, and the dividend yield on the inder is 0 . (a) What is the no-arbitrage forward price for delivery in 9 months? (b) Suppose a customer wisbes to enter into a short index forward position. If you take the opposite position, demonstrate how you would hedge your resulting long position using the index and borrowing or lexding. (You can assume the size of the forward relative to the underlying is one for all questions bereafter that ask you to write down the arbitrage strategies.) (c) Suppose you observe a 9-month forward price of 1150 . What arbitrage would you undertake