Today is early february the crude oil futures contract is, Ask an Expert

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Today is early February. The crude oil futures contract is on 1,000 barrels of crude oil. You have the following price information. Assume 3 months until expiration.

May crude oil futures price: $99.31 per barrel.

Spot market price for crude oil: $79.49 per barrel.

Rate of interest is 1.86%/month, compounded monthly. (Example: compounding for three months: ((1 + .01)^3)

Storage costs of crude oil is $0.50/barrel per month (payable in arrears).

An arbitrage opportunity exists; assume you own sufficient crude oil to execute it, if the strategy calls for selling oil in the spot market. If the strategy is executed with one May crude oil futures contract, what is the arbitrage profit (not counting transactions costs or taxes) rounded to the nearest dollar?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92329140

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