14. In a market free from transaction costs, arbitrage opportunities, taxes, or

restrictions from short selling, what would the fair price be for an oil futures

contract if spot oil is trading at $50, the risk-free rate is 5% (compounded

semi-annually), and expiration is six months away?

15. Working from the information in the last question, if restrictions on short

selling meant that a reverse cash-and-carry trader (one who is long the

futures contract and simultaneously short the underlying asset) could only

receive the use of 85% of the proceeds of oil sold short, what is the permissible

range of oil futures prices?

16. Taking all of the information in the last two questions into account, if borrowing

cost was 5%, but the lending rate was 4.5% (both compounded semi-annually),

what now would be the permissible range of oil futures prices?