1. Which of the following statements about forwards, futures, and options is correct?
Futures contracts and options contracts are economically similar, but vary greatly in how they are traded.
Forward contracts and options contracts are economically similar, but vary greatly in how they are traded.
Forward contracts, futures contracts, and options contracts are all economically similar, but vary greatly in how they are traded.
Forward contracts and futures contracts are economically similar, but vary greatly in how they are traded.
2. Suppose you have cash on hand in the amount of d dollars and wish to buy a house. Assume that you want to have a down payment of 10% of the house price, and transactions costs are 8% of the house price. Also, suppose a payment of R dollars per month pays off a mortgage loan of 217.39R dollars in 25 years.
(a) Express the house price you can afford as a function of the cash on hand d.
(b) Express the monthly mortgage payment required as a function of the cash on hand d.
(c) Express the cash on hand required as a function of the monthly mort- gage payment you can afford.