Commodities

A)

It is well documented that commodity prices are very volatile when compared to other asset classes.  Discuss factors that cause volatility in the commodity markets.

5B)

For the following questions assume the risk free rate of return is 2.50%

Your company imports large quantities of oil.  On January 1^st 2011 the spot price of oil is $70.  You are concerned that recent events will drive the price of oil higher in 90 days time when you will need to purchase a large quantity. Under these circumstances calculate the price of a forward contract. In 90 days time the spot price of oil is $125; calculate the profit or loss of your forward position.

What is the 10 month forward price of a dividend security based on the following information: