Homework

I need help with this assignment. Can someone please help me and solve and explain some of the problems that are stated in the attached file.

Thank you

1. Suppose that you are given with the following information on a futures contract with a certain commodity of interest and 6 months to maturity, S o $90.9 as the spot (cash) price, F = $89.7 as the current future price of the contract. Suppose the per annum riskfree rate is 3.2%, and assuming that there is no arbitrage opportunity in the futures market, a) What is the convenience yield for this contract provided that the current futures price is equal to the expected spot price? What does the convenience yield mean? b) Assuming that the futures pricing model is to provide the expected spot price and if the futures price F = $104.8, are we having a contango or normal backwardation? Why? What is a contango or normal backwardation anyway? c) Why the estimate for volatility (such as the standard deviation of spot price change or futures price change) does not enter the theoretical futures pricing model (except for volatility futures contract)? 2. A diagonal spread is created by buying a call with strike price and with exercise X2 date as while selling a call with strike price as with exercise date , where > . T2 X1 T1 T2 T1 Show the payoffs (not just the graph) from this spread when > and when