of oil is US$90 rear futures price of oil is US$75 ES interest rate is 5% per annum sts of oil are 1% per annum ge opportunity? If so, explain the strategy that you will fo

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter1: Introduction And Goals Of The Firm
Section: Chapter Questions
Problem 4E: In the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act...
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Suppose that:
i. The spot price of oil is US$90
ii. The quoted 1-year futures price of oil is US$75
iii. The 1-year US$ interest rate is 5% per annum
iv. The storage costs of oil are 1% per annum
Is there an arbitrage opportunity? If so, explain the strategy that you will follow.
Transcribed Image Text:Suppose that: i. The spot price of oil is US$90 ii. The quoted 1-year futures price of oil is US$75 iii. The 1-year US$ interest rate is 5% per annum iv. The storage costs of oil are 1% per annum Is there an arbitrage opportunity? If so, explain the strategy that you will follow.
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