Question
Suppose that wheat can be stored at 20 cents per bushel per year (paid at the beginning of the year) and the risk free interest
Suppose that wheat can be stored at 20 cents per bushel per year (paid at the beginning of the year) and the risk free interest rate is 5% per year with contin- uous compounding.Each wheat futures contract is for 5,000 bushel of wheat and the price is listed in cents. If the futures price for the October 2009 contract is 210.75 and the futures price for the October 2010 contract is 254. How would you make money by trading the October 2009 and October 2010 contracts? How much money can you make for each October 2009 contract? [hint: the cost of carry should be incorporated into calculating the forward price]
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