1. Lenders perceive that you are risky, so you must pay 12 percent annual interest to borrow from one of them. You only receive 6 percent on funds you have deposited in the bank. Do the opportunity costs of borrowing and using your own funds differ in this example? Explain why or why not.
2. Devise a hypothetical business situation in which buying a lookback call option on a commodity may be a sound strategy for you. How about a down-and-out call option?