Question: a. Consider a consumption asset with storage costs. Can the futures price be smaller than the sum of the price of the underlying asset

a. Consider a consumption asset with storage costs. Can the futures price

a. Consider a consumption asset with storage costs. Can the futures price be smaller than the sum of the price of the underlying asset and the present value of storage costs? [10 marks] b. Consider a 10-year corporate bond with coupon of 6% per annum paid semi-annually. The spot price of the bond is 102. The risk free interest rate is 8% per annum compounded continuously. What should be its fair 4-month futures price? (Assume that the coupon is paid today i.e., no accrued interest)? [10 marks]

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