QUESTION 7

Consider the following data for calculating the price of Crude Palm Oil Futures.

March 1^st, 2018

Spot price : RM2350 per MT

June CPO price : RM2550 per MT

July CPO price : RM2680 per MT

Dividend yield : 7% per annum

Borrowing rate : 12% per annum

Storage cost per month per tonne : RM3 per month

The arbitrageur is willing to take 15,000 tonnes for his arbitraging activities.

1. Determine whether the December CPO futures is fairly priced.
2. Create an arbitrage strategy that could be implemented today to take advantage from the situation?
3. Calculate the profit you would make from your strategy in (ii).