Question
In March , A September futures contract on 10,000 MMBtu of natural gas settled for $3.05 per MMBtu. Assume that the contract has exactly 6
In March , A September futures contract on 10,000 MMBtu of natural gas settled for $3.05 per MMBtu. Assume that the contract has exactly 6 months to maturity. Present value of six months worth of storage costs is $.05 per MMBtu. The spot price is $2.75. The annual interest rate is 3.5%.
How do you design arbitrage to make profit:where you borrow; buy the commodity spot; sell forward; and store?How much would the storage and insurance costs have to be to wipe away your arbitrage profit if the futures price is $3.05?
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
Financial Management for Public, Health and Not-for-Profit Organizations
Authors: Steven A. Finkler, Daniel L. Smith, Thad D. Calabrese, Robert M. Purtell
5th edition
1506326846, 9781506326863, 1506326862, 978-1506326849
