1.In July 2019, a company wants to lock in the interest rate that will be earned for three months on an $8 million deposit to be made in March 2020. The company decides to trade in Eurodollar futures and the March 2020 Eurodollar futures price is 95.5. In March the company closes out its position in the futures market when the 3-month LIBOR is 5% per annum and the futures price is 95. What is the profit or loss earned (in dollars) by the company on its deposit after taking into account the gain or loss in the futures market?

A.Loss of $10,000

B.Profit of $11,000

C.Loss of $12,000

D.Profit of $13,000

Loss of $13,500

2.The spot price of a commodity is $50 per unit. The continuously compounded interest rate is 6%, the storage costs are 0.5% of the price of asset per annum (continuously compounded). If the 1-year forward price is $52.695, what is the convenience yield?

A. 0.95%

B. 1.05%

C. 1.15%

D. 1.25%

E.None of the above

3.Which of the following statements are true for an asset with positive systematic risk?

i.The expected future spot price of an asset is more than its forward price.

ii.If the forward price of an asset is more than the expected future spot price, it means that an investor can earn a risk-free return that is higher than the expected return on a risky asset, which cannot hold in a well-functioning financial market.

iii.An investor who is long on an asset can eliminate all the price risk associated with the asset by selling a forward contract on the asset. Therefore, buying an asset and selling a forward contract on it should only yield a return equal to the risk-free rate. This is one way of looking at how forward prices are determined.

A.i and ii

B.i and iii

C.ii and iii

D.All of the above

E.None of the above