Calculation of spot price

Assignment Help Finance Basics
Reference no: EM13828148

Problem:

The current spot price of 1 barrel of crude oil is $120, the 1.75 year spot rate is 5% (c.c.), the (continuous flow of) storage costs of crude oil is 1% per year.

(a)  In absence of arbitrage, what should be the forward price to trade crude oil in 1.75 years if crude oil was an investment asset?

(b)  Assume crude oil is a consumption asset.  Is there an arbitrage if the forward price to trade 1 barrel of crude oil in 1.75 years is $140?  If so, describe an arbitrage strategy.

(c)  What is the convenience yield if the true forward price to trade 1 barrel of crude oil in 1.75 years is $110?

Additional Information:

This question is from Finance as well as it is calculation of spot price. The question deals with calculation of spot price of forwards for crude oil. Forward calculation in the presence of arbitrage, in the absence of arbitrage have been calculated.

Reference no: EM13828148

Questions Cloud

Wise leaders know that the key to balancing innovation : Wise leaders know that the key to balancing innovation and execution skills in a team or company is knowing who has what skills and then figuring out how to combine those complementary strengths within a team to generate quality ideas that will produ..
Importance of investing in a range of currency portfolios : Explain how a centralized cash management system could be beneficial to the MNC and explain why a firm would consider investing in a portfolio of currencies instead of just a single currency?
External environment analysis for a uk trainoperating compan : External Environment Analysis For A UK Train Operating Company
Five team processes that encourage innovation : Critically examine the five team processes that encourage innovation. What is the significance of each process and how does it relate specifically to the team's leader? Your response should be at least 200 words in length. You are required to use at ..
Calculation of spot price : The current spot price of 1 barrel of crude oil is $120, the 1.75 year spot rate is 5% (c.c.), the (continuous flow of) storage costs of crude oil is 1% per year.
Factors affecting global business environment : Factors Affecting Global Business Environment
Computation of forward rate agreements : On the 15th of May 2013 you enter a Forward  Rate Agreement (FRA)  to borrow on the 15th of September 2013 $1'000'000 for 8 months at a fixed annualized interest rate of 5% (for a FRA  with a contract length of 8 months the compounding  frequency ..
What is primary production secondary and tertiary production : What is primary production, secondary and tertiary production? Please draw a typical black oil phase diagram, label the important points and lines talked about in the class and specify the isothermal production procedure for a saturated reservoir
Technology transfer mechanism : Technology Transfer Mechanism

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd