Strategy is executed with one may corn futures contract

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Reference no: EM131520435

Today is early January. The corn futures contract is on 5,000 bu. of yellow corn. You have the following price information. Assume 4 months until expiration.

May corn futures price: $5.83 per bushel.

Spot market price for yellow corn: $5.54 per bushel.

Rate of interest is 2.7%/month, compounded monthly. (Example: compounding of 1% for three months: (1 + .01)^3)

Storage costs of corn is $0.04/bu. per month (payable in arrears).

An arbitrage opportunity exists; assume you own sufficient corn to execute it, if the strategy calls for selling corn in the spot market. If the strategy is executed with one May corn futures contract, what is the total arbitrage profit (not counting transactions costs or taxes) rounded to the dollar?

Please show all work.

Reference no: EM131520435

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