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It is December now. A September futures contract on 10,000 MMBtu of natural gas settled for $2.95 per MMBtu. Assume that the contract has exactly
It is December now. A September futures contract on 10,000 MMBtu of natural gas settled for $2.95 per MMBtu. Assume that the contract has exactly 9 months (0.75 years) to maturity. The spot price is $2.78. Present value of nine months' worth of storage costs is $.05 per MMBtu. The interest rate is 5% annually. Assume convenience yield to be zero. Use continuous compounding. You design the following arbitrage strategy: Find the arbitrage profit per 10,000MMB tu. Round to the nearest 100 . a. $100 b. $300 c. $400 d. $700
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