(Solved): Question Four (Total 10 marks) Suppose the spot price for hogs is $120 and its futures price expirin ...

Question Four (Total 10 marks) Suppose the spot price for hogs is

and its futures price expiring in one year is

. The interest rate for one year is

. a. Determine whether the futures price of hogs is overpriced or underpriced. Show your workings and briefly explain your answer. [3 marks] b. Is there any arbitrage opportunity presented in the question? If yes, describe the transactions necessary to take advantage of this opportunity. How much profit can be made? Show your workings clearly and briefly explain your answer. [7 marks]