1. Due to an expected supply disruption via delivery over the Mid-Atlantic shipping lanes due to a Nor'easter that suddenly blows in from Halifax, prices in pits of the Coffee, Sugar and Cocoa Exchange(CSCE) in New York City have gone completely haywire this week!Please notebelow spot&futures quotes on #7 Columbian arabica beans:

Spot Coffee Beans ($ per pound)8.39

December Coffee Futures9.17

(delivers 25,000 lbs. in 62 days)

'overnight' term repo rate2.28%

(annually-stated)

Suppose your firm, Caffeines 'R Us, is a major market player for coffee shipments destined to the NYC metro area; and thus owns CSCE seats with full access to therepurchase agreement market at the rates quoted above.

d. Using the Cost of Carry pricing equation (including themarket frictions), determine futures market price 'atfull carry'. What will happen to the size of the basis?

***please help me with question d