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What is the payoff in 3 months for prices

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a. Suppose you enter into a short 3-month forward position at a forward price of $50. What is the payoff in 3 months for prices of $40, $45, $50, $55, and $60?

b. Suppose you buy a 3-month put option with a strike price of $50. What is the payoff in 3 months at the same prices for the underlying asset?

c. Comparing the payoff of part (a) and (b), which contract should be more expensive (i.e., the long put or short forward)? Why?

Reference no: EM132769718

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