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2. Suppose the current price (as of August 31) of WTI crude oil is $79.81 per barrel, and assume oil can be stored costlessly. a)
2. Suppose the current price (as of August 31) of WTI crude oil is $79.81 per barrel, and assume oil can be stored costlessly. a) What is the forward price of WTI for delivery in 2 months (T-October 31) if the 2- month interest rate is 5%? b) If the forward price of WTI for delivery in 2 months (10/31) were $80.00, is there an arbitrage opportunity? If so, how would you exploit it and what would your profit be? c) Go forward 1 month in time (t-9/30) and assume the one-month interest rate is 5% at that time. The one-month forward price (T-10/31) of WTI is $81.00. If you had taken a long position in the original 2-month forward on WTI with F set to avoid arbitrage on August 31, how much would that long position be worth one month later (9/30)? d) If on September 30, the 1-month forward price (T-10/31) of WTI is $81/brl, what is the value on September 30 of a short contract in WTI with T=10/31 and F=$81/brl? 2. Suppose the current price (as of August 31) of WTI crude oil is $79.81 per barrel, and assume oil can be stored costlessly. a) What is the forward price of WII for delivery in 2 months (T=October 31) if the 2month interest rate is 5% ? b) If the forward price of WTI for delivery in 2 months (10/31) were $80.00, is there an arbitrage opportunity? If so, how would you exploit it and what would your profit be? c) Go forward 1 month in time (t=9/30) and assume the one-month interest rate is 5% at that time. The one-month forward price (T=10/31) of WTI is $81.00. If you had taken a long position in the original 2-month forward on WTI with F set to avoid arbitrage on August 31, how much would that long position be worth one month later (9/30) ? d) If on September 30, the 1-month forward price ( T=10/31 ) of WII is $81/ brl, what is the value on September 30 of a short contract in WTI with T=10/31 and F=$81/br
2. Suppose the current price (as of August 31) of WTI crude oil is $79.81 per barrel, and assume oil can be stored costlessly. a) What is the forward price of WTI for delivery in 2 months (T-October 31) if the 2- month interest rate is 5%? b) If the forward price of WTI for delivery in 2 months (10/31) were $80.00, is there an arbitrage opportunity? If so, how would you exploit it and what would your profit be? c) Go forward 1 month in time (t-9/30) and assume the one-month interest rate is 5% at that time. The one-month forward price (T-10/31) of WTI is $81.00. If you had taken a long position in the original 2-month forward on WTI with F set to avoid arbitrage on August 31, how much would that long position be worth one month later (9/30)? d) If on September 30, the 1-month forward price (T-10/31) of WTI is $81/brl, what is the value on September 30 of a short contract in WTI with T=10/31 and F=$81/brl?
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