Q1 (3 points): Based on material covered in Lecture 10 part 2, assume spot rate for natural gas is $6.336. May 2022 front month natural gas future is priced at $6.334. We are looking to price natural gas out to t=2 months so our back month futures price is for July 2022 currently trading at $6.473. A) If storage cost is 0.1% of the spot price and cost of capital / borrowing is 1.73% pa, with time to maturity of 2 months, what is the convenience underlying this market? B) Assume that spot price and future front month price as well as convenience and storage costs remain the same. Suppose the Federal Reserve is expected to raise interest rates 50 bps (0.5% points) between now and end of June 2022. Assuming all 50 bps of the hike are passed through to capital costs, how much will the forward back month contract pricing change in response to change in interest rates? C) Based on you calculations in (B), do you expect Federal Reserve monetary policies over 2022 being inflationary or deflationary in energy markets? Explain your reasoning.

Q2 (3 points): Based on lecture 10 Part 2, consider a Private Equity Fund, PEF Inc that has the following cash flow: Year 1: Investment in Project A at -$17.341 million Year 2: Investment in Project B at -$7.829 million and inflow of income from Project A at $1.994 million. Year 3: Investment in Project C at -19.930 million and inflows of income from Project A at $2.124 million and from project B at $1.174 million. Years 4-5: Each year, we have cash inflows from Project A at 10% of the investment allocation, Project B at 11.5% of the investment allocation and Project C at 0% of the investment allocation. Year 6: Cash inflow from Project A at 10% of the investment allocation, Project B cash inflow at 5% of the investment allocation and disposal of Project C for $23.750 million. Year 7: Cash inflow from Project A at 10% of the investment allocation, Project B at 7.5% of the investment allocation. Year 8: Cash inflow from Project A at 10% of the investment allocation and cash proceeds from disposal of Project B for $10.310 million. Year 9: Cash inflow from Project A at 10% of the investment allocation. Year 10: Proceeds from sale of Project A for $25.792 million. Assume that all cashflows are distributed in year received. A) Calculate the expected IRR B) Assuming cost of capital at 6% and reinvestment rate of 9%, calculate modified IRR. C) What do the two values tell us about expected performance of the PEF over the next 10 years?

Q3 (4 points): Per our readings on equity markets investing, value strategies perform well after growth strategies lead to a financial bubble burst or a bust. Should investors consider looking for value investing opportunities or growth investing opportunities in Ukraine these days? Why? Explain your reasoning.