Assume there are only three possible outcomes for the spot price of a commodity which underlies a futures contract at the maturity of that futures contract. As seen today, these prices (i.e. those at the maturity of the futures contract) are 90, 100 or 1 10 and each may occur with probability 1/3, 1/3 and 1/3. Further, assume that futures market prices are set in accordance with the theory of (normal) contango. Which of the following is a potential price that could "clear the marker"?

a. 90

b. 95

c. 100

d. 105

e. None of the above prices could possibly clear the market.

Assume that futures market prices are set in accordance with the theory of normal backwardation. At the point when positions are initially established by hedgers and speculators, their expectations about the profits for the positions they took in the futures market are:

a. Hedgers and speculators both expect a loss.

b. Hedgers and speculators both expect a profit.

c. Speculators expect a profit and hedgers expect a loss.

d. Hedgers expect a profit and speculators expect a loss.

e. Their expectations will be based on whether they consider the current futures price to be overvalued or undervalued.