Compute the questions and explain your Answers.

a) Highlight four factors that could affect the price of a futures contract. b) Peter Oteba intends to purchase a futures contract whose underlying asset is gold. The following information is provided to him: 1. The current price of gold is Sh.30,000. 2. The net cost of carry for gold is zero..... ...... 3. The risk-free rate is 6 percent. 4. One year has 365 days. Required: i. The price of a 90-day futures contract. ii. Illustrate how an arbitrage transaction could be executed if the futures contract is priced at Sh.30,600. ii. Illustrate how an arbitrage transaction could be executed if the futures contract is priced at Sh.30,300. c) A bank plans to make a Sh.10 million floating rate loan in 90 days. The loan period will be 180 days and the rate will be 180-day LIBOR plus 150 basis points. The current 90-day LIBOR is 10.5%. The bank is worried about falling interest rates over the period from now until the loan starts and decides to use an interest rate put option with an exercise price of 9% priced at Sh.5,023. Required: The effective rate on the loan given that the LIBOR at expiration is 5%