We are back in the single period binomial world.

A client wants to sell you a generic $($non$-$fair$)$ forward contract i$.$e$.$ the strike K is not arbitrage$-$free.

Since it is not a fair contract, you are asking the client to pay you a price $($a premium$)$ for you to enter the

contract. The object of this problem is to find this premium and a trading strategy to hedge all your risks.

$1.$ What is the payoff of this derivative contract at each terminal state at maturity T $($hint: nothing really

changed$)?$

$2.$ Since you are starting with a non$-$zero premium, find the delta $$ and the $($arbitrage$-$free$)$ premium so

that you end up with zero pnl in all scenarios.

$3.$ Summarize your replication strategy of this contract at each step.