a risk-free bond with face value of $1000 expiring one year from today can be bought or sold for $990. the spot price of oil today is $95 per barrel. the all-in cost of storing 10,000 barrels of oil over the next year is $25,000 (in PV). no dividends and no convenience yield. answer parts a, b and c.

Q2. (8 points) A risk-free bond with face value of $1000 expiring one year from today can be bought or sold for $990. The spot price of oil today is $95 per barrel. The all-in cost of storing 10,000 barrels of oil over the next year is $25,000 (in present value). Oil pays no dividends and has no convenience yield. (a) What is the no-arbitrage delivery price for a forward contract on a barrel of oil with delivery date one year from today? (b) Imagine the futures price for a barrel of oil delivered one year from today is $100 per arrel, and that you can buy or sell forwards at this price. Assume you can store at most 10,000 barrels of o' , and you need to pay the $25,000 in storage costs today. Further assume that you do not want to commit any of your own funds or keep any proceeds from sales today in cash. Fill the following table on your trading activity and quantity today. How would you trade today oil on the spot market, 0' futures and the risk-free bond in order to create a risk-free prot? Asset Trade Quantity Transacted Cash Flow (in :5) (today) (today) (today) circle one How many bonds? Dollar Amount Risk-free sell buy bonds circle one How many barrels? Dollar Amount Oil sell buy barrels circle one How many contracts? Dollar Amount Oil sell buy futures Other Costs CF today (in $) Storage Costs (paid upfront) (c) Given your trade in part (b), how much prot would you make in a year (including any storage costs payments)