1. How doesn a futures market operates and how might it facilitate the trade in industrial and agricultural commodities? what are the consequences of the replacement of future contratcs by options?

2. One of the economic models used to determine the market price for risk and appropriate measure of risk for a single asset is CAPM. Explain the implications of the following assumptions made in developing the CAPM

I) Market are frictionless

ii) alllassets are divisible and marketable

iii) Investors have homogeneous beliefs

iv) investors mximise the expected utility of their end of the period wealth

3. $2000 is borrowed at a simple interest rate of 8 %. If $700 is paid at the end of 3 months and $800 at the end of 7 months, find the amount due at the end of 1 year using

?(a) The Merchants Rule?

(b) the Us rule