Joan Tam, CFA, believes she has identified an arbitrage opportunity for a commodity as indicated by the
Question:
Spot price for commodity ................. $120
Futures price for commodity expiring in 1 year ....... $125
Interest rate for 1 year .................. 8%
a. Describe the transactions necessary to take advantage of this specific arbitrage opportunity.
b. Calculate the arbitrage profit.
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a The strategy that would take advantage of the arbitrage opportunity is a reverse cash ...View the full answer
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