1)The spot price of oil is $80 per barrel and the cost of storing a barrel of oil for one year is $3, payable at the end
Posted: Wed May 18, 2022 11:42 pm
1)The spot price of oil is $80 per barrel and the cost of
storing a barrel of oil for one year is $3, payable at the end of
the year. The risk-free interest rate is 5% per annum, continuously
compounded. What should the futures price for the one-year contract
of oil be?
2) The two-month interest rates in UK and the United States are,
respectively, 4% and 2% per annum with continuous compounding. The
spot price of the British pound is $1.30. (a) What is the
theoretical two-month futures price of the British pound?
(b) If the futures price of the British pound for a contract
deliverable in two months is $1.25. What arbitrage opportunities
does this create? Describe your arbitrage strategy in detail.
3) Explain carefully what is meant by the expected price
of a commodity on a particular future date. Suppose that the
futures price of crude oil declines with the maturity of the
contract at the rate of 2% per year. Assume that speculators tend
to be short crude oil futures and hedgers tended to be long crude
oil futures. What does the Keynes and Hicks argument imply about
the expected future price of oil?
Could you answer from 2 down please answer one is £87.10
storing a barrel of oil for one year is $3, payable at the end of
the year. The risk-free interest rate is 5% per annum, continuously
compounded. What should the futures price for the one-year contract
of oil be?
2) The two-month interest rates in UK and the United States are,
respectively, 4% and 2% per annum with continuous compounding. The
spot price of the British pound is $1.30. (a) What is the
theoretical two-month futures price of the British pound?
(b) If the futures price of the British pound for a contract
deliverable in two months is $1.25. What arbitrage opportunities
does this create? Describe your arbitrage strategy in detail.
3) Explain carefully what is meant by the expected price
of a commodity on a particular future date. Suppose that the
futures price of crude oil declines with the maturity of the
contract at the rate of 2% per year. Assume that speculators tend
to be short crude oil futures and hedgers tended to be long crude
oil futures. What does the Keynes and Hicks argument imply about
the expected future price of oil?
Could you answer from 2 down please answer one is £87.10