The physical market price of premium olive oil is $30 per litre. A futures contract on 100,000 litres with settlement in 1 year is currently priced at $33.00 per litre. The one year interest rate is 6% p.a. (continuously compounded) and it costs $0.50 per litre per year (payable at the beginning of each year) to store olive oil.

You can make riskless arbitrage profit of $61,300 to the nearest dollar) by buying 100,000 litres of physical olive oil, storing it and selling one futures contract.

TRUE or FALSE?

Show all working and explanations.

Question 24 Complete Mark 1.00 out of 2.00 The physical market price of premium olive oil is $30 per litre. A futures contract on 100,000 litres with settlement in 1 year is currently priced at $33.00 per litre. The one year interest rate is 6% p.a. (continuously compounded) and it costs $0.50 per litre per year (payable at the beginning of each year) to store olive oil. You can make riskless arbitrage profit of $61,300 to the nearest dollar) by buying 100,000 litres of physical olive oil, storing it and selling one futures contract. Flag question TRUE or FALSE? Show all working and explanations