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Suppose the current price (as of August 31) of WTI crude oil is $44.53 per barrel, and assume oil can be stored costlessly. What is

  1. Suppose the current price (as of August 31) of WTI crude oil is $44.53 per barrel, and assume oil can be stored costlessly.

  1. What is the forward price of WTI for delivery in 2 months (T=October 31) if the 2-month interest rate is 1.6%?
  2. If the forward price of WTI for delivery in 2 months (10/31) were $44.41, is there an arbitrage opportunity? If so, how would you exploit it and what would your profit be?
  3. Go forward 1 month in time (t=9/30), and assume the one month interest rate is 1.6% at that time. The one-month forward price (T=10/31) of WTI is $46.00. If you had taken a long position in the original 2-month forward on WTI with F=$44.41 on August 31, how much would that long position be worth one month later (9/30)?
  4. If on September 30, the 1-month forward price (T=10/31) of WTI is $46/brl, what is the value on September 30 of a short contract in WTI with T=10/31 and F=$46/brl?

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