Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assume that there is a Potato market, a French Fry market, and a Potato Skin market. TWO bushels of potatoes converts into 1.5 bushels of
Assume that there is a Potato market, a French Fry market, and a Potato Skin market. TWO bushels of potatoes converts into 1.5 bushels of French Fries and 0.5 bushels of Potato Skins. You have the following information on market prices:
Future price of Potatoes per bushel (expires in 10 days) | $14.10 |
Spot price of Potatoes per bushel | $14.00 |
Future price of French Fries per 1.5 bushels (expires in 10 days) | $20.30 |
Spot price of French Fries per 1.5 bushels | $20.15 |
Future price of Potato Skins per 0.5 bushel (expires in 10 days) | $15.20 |
Spot price of Potato Skins per 0.5 bushel | $15.05 |
Total cost to convert TWO bushel's of Potatoes into 1.5 bushels of French Fries and 0.5 bushels of Potato Skins | $4.00 |
Cost to store TWO bushels of Potatoes per day | $0.10 |
What are the arbitrage profits in this case?
Note: Converting Potatoes into French Fries and Potato Skins takes a total of 5 DAYS. The cost to store TWO bushels of Potatoes per day is the same if you are storing 1.5 bushels of French Fries and 0.5 bushels of Potato Skin.
Please answer fast thanks.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started