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

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.6P
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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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