The current spot price of a barrel of oil. So, is $70.63. The per year continuously...
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The current spot price of a barrel of oil. So, is $70.63. The per year continuously compounded risk-free rate of interest. r. is 3%, storage cost. u. is 2%, and convenience yield, y, is 8%. The expected return of oil, T. is 12%. Answer the following questions for a futures contract with a maturity. T. of 6 months. a. What is the expected spot price on the maturity date of the contract? b. What is the no arbitrage futures price? c. Is the futures price in part b in contango or normal backwardation? d. Give your answer in part c, would a speculator go long or short in the future contract? Explain your answer. The current spot price of a barrel of oil. So, is $70.63. The per year continuously compounded risk-free rate of interest. r. is 3%, storage cost. u. is 2%, and convenience yield, y, is 8%. The expected return of oil, T. is 12%. Answer the following questions for a futures contract with a maturity. T. of 6 months. a. What is the expected spot price on the maturity date of the contract? b. What is the no arbitrage futures price? c. Is the futures price in part b in contango or normal backwardation? d. Give your answer in part c, would a speculator go long or short in the future contract? Explain your answer.
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