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(a) If the annual discrete compounding risk-free rate is 10%, and the cost of carry offsets the convenience yield exactly, then the future price is

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(a) If the annual discrete compounding risk-free rate is 10%, and the cost of carry offsets the convenience yield exactly, then the future price is equal to the spot price. Please explain. [1 mark] t=0 t=1 t=2 Pu=0.5 F1,2=4 > F2,2=4 FO,2=3 F1,2=2 Pd=0.5 > F2.2=2

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