1. Suppose there is a commodity in which the expected future spot price is $60. To induce investors to buy futures contracts, a risk premium of $4 is required. To store the commodity for the life of the futures contract would cost $5.50. Find the future price. 2. The following information was available: spot rate for Japanese yen: $0.009313; 730 day forward rate for Japanese yen:$0.010475 (assume a 365-day year); U.S. risk-free rate: 7.0 percent; Japanese risk-free rate;1.0 percent

A.Assuming annual compounding, determine whether interest rate parity holds and , if not suggest a strategy

b. Assuming continuous compounding, determine whether interest rate parity holds and if not, suggest a strategy. 3. Suppose the U.S. interest rate for the next six months is 1.5 percent (annual compounding). The foreign interest rate is 2 percent (annual compounding). The spot price of the foreign currency in dollars is $1,665. The forward price is $1,664. Determine the correct forward price and recommend an arbitrage strategy.