Reference no: EM133120236
1. Spot price of soybeans is $8.8200/bu. The total interest rate on four-month loans and deposits is 1.12% (i.e. $100 borrowed today would require a payment of $101.12 in four months).
A. Assuming no storage cost and no transaction cost, determine the no-arbitrage price for a soybeans futures contract maturing four months from now.
B. Suppose that the four-month soybeans futures contract is actually traded at $9.0775/bu. Determine if an arbitrage opportunity is present. Describe a trading strategy that takes advantage of this arbitrage opportunity and calculate the profit of the strategy per contract. Make sure to clearly identify what position should be taken in the futures contract, whether the asset should be bought or sold, and how much cash will have to be borrowed or invested. The contract size is 5,000 bu.
2. Spot price of gasoline is $1.9506/gal. The total interest rate on six-month loans and deposits is 2.28%.
A. Assuming no storage cost and no transaction cost, determine the no-arbitrage price for a gasoline futures contract maturing six months from now.
B. Suppose that the six-month gasoline futures contract is actually traded at $1.9782/gal. Determine if an arbitrage opportunity is present. Describe a trading strategy that takes advantage of this arbitrage opportunity and calculate the profit of the strategy per contract. Make sure to clearly identify what position should be taken in the futures contract, whether the asset should be bought or sold, and how much cash will have to be borrowed or invested. The contract size is 42,000 gal. Note. Round all results to four decimal places.
3. Spot price of wheat is 7.3200/bu. The total interest rate on five-month loans and deposits is 1.60%.
The storage cost is 0.25% of the asset value per month paid at the end of the storage period. Assuming no transaction cost, determine the no-arbitrage price for a wheat futures contract maturing five months from now. Note. Round all results to four decimal places.
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: 1. Spot price of soybeans is $8.8200/bu. The total interest rate on four-month loans and deposits is 1.12% (i.e. $100 borrowed today would require a payment of
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