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Suppose unleaded gasoline is currently trading at $3.00 per gallon. You face an interest rate of 5.00 percent and a carrying cost of $.03 per
Suppose unleaded gasoline is currently trading at $3.00 per gallon. You face an interest rate of 5.00 percent and a carrying cost of $.03 per gallon per month. The current market price of a four-month futures contract on gasoline is $3.50 per gallon. You are evaluating a three-month carry trade opportunity.
A. Determine the present value of the storage costs (PVSC).
B. Identify what the futures price should be under spot-futures parity.
C. Calculate the potential profit per gallon.
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