Suppose the current spot price is $3. With 50 percent of the probability, the spot price will inc...

Suppose the current spot price is $3. With 50 percent of the probability, the spot price will increase or decrease by 1 dollar for first year and then remain the same as shown in the graph below. t=2 ìš” Pu=0.5 90-4 S0-4 30-3 50_2 SO-2 Pd=0.5 Please answer the following questions. (a) If the annual discrete compounding risk-free rate is 10%, and the cost of carry offsets the convenience yield exactly, then the future price is equal to the spot price. Please explain. (1 mark] t=2 Pu=0.5 F1,24 F2,2=4 F0,2-3 F1,2-2 F2,2-2 Pd=0.5