Question
You are interested in buying a Futures Contract for 40,000 lbs. of Hogs, Iowa-So. Minnesota if there is an opportunity for an Arbitrage Profit in
You are interested in buying a Futures Contract for 40,000 lbs. of Hogs, Iowa-So. Minnesota if there is an opportunity for an Arbitrage Profit in selling the Hogs in February 2022. Using The Wall Street Journal edition November 5, 2021 (handout), compute the Spot-Futures Parity (F0) for 40,000 lbs. of Hogs. Use Cash Price of Hogs, Iowa-So. Minnesota from the same handout. Use the current Annual Prime Interest Rate of 3.25%. Use November 22, 2021 as Todays Date for purchase as we assume all prices on the handout are the same. The Expiration Date of this Futures Contract is the third Friday of February 2022. Note: Hogs are quoted in cents per pound (lb.) where 79.15 equals 79.15 cents per pound (lb.) or $0.7915 per pound (lb.). What is the total Arbitrage Profit for the 40,000 lbs. of Hogs, Iowa-So. Minnesota?
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