How much profit would he makes

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Reference no: EM132601611

Assume we have the following information:

Spot price: 1146.00

Actual futures price : 1192.50

Theoretical futures price: 1160.00

Maturity: 3 months

a. Is the futures fairly priced?

Suppose an arbitrageur wish to take advantage of this opportunity. He has RM10,000,000.00 which he can fund at the current risk-free rate of 5%.

b. What should he do?

c. How many contracts should be shorted or bought?

d. Assume that the arbitrageur maintains this position until contract expiry at which time futures and cash prices have converged to 1165. How much profit would he makes?

Reference no: EM132601611

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