Answer: Buy the forward contract and buy the zero-coupon bond.

## Explanation A synthetic long position in a commodity for a period of T years can be constructed by: - Entering into a **long forward/futures contract** with T years to expiration - Buying a **zero-coupon bond** expiring in T years with a face value equal to the forward price ### Payoff Analysis: - **Payoff from long forward position**: \( S_T - F_{0,T} \) - Where \( S_T \) is the spot price at time T - \( F_{0,T} \) is the current forward price (USD 1,000) - **Payoff from zero-coupon bond**: \( F_{0,T} \) (USD 1,000) - **Total payoff**: \( (S_T - F_{0,T}) + F_{0,T} = S_T \) This creates a synthetic commodity position where the total payoff equals the spot price of the commodity at time T, exactly replicating the payoff of owning the physical commodity. ### Why other options are incorrect: - **B**: Buying forward + shorting bond gives \( (S_T - F_{0,T}) - F_{0,T} = S_T - 2F_{0,T} \) - **C**: Shorting forward + buying bond gives \( (F_{0,T} - S_T) + F_{0,T} = 2F_{0,T} - S_T \) - **D**: Shorting forward + shorting bond gives \( (F_{0,T} - S_T) - F_{0,T} = -S_T \) Only option A creates the desired synthetic long position in the commodity.

Author: LeetQuiz .