Suppose That the Risk-Free Rate Is 4% and the Market

question 55

Essay

Suppose that the risk-free rate is 4% and the market risk premium is 6%.You are interested in a cocoa futures contract.The beta of cocoa is -0.291.
- What is the required annual rate of return on the cocoa contract
- You plan to hold the contract for three months, then take delivery of the cocoa.At that time you expect the spot price of cocoa to be $900 per ton.What is the present value of this three-month deferred claim
What would the proper price be for this contract

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Definitions:

Desired Situation

The optimal state or condition that a person, group, or organization aims to achieve in the future.

Actual Situation

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A reference to the net income, profit, or loss reported at the bottom of a company's income statement.

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