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Shtirlitz [24]
2 years ago
15

Suppose that there are no storage costs for crude oil and the interest rate for borrowing or lending is 5% per annum. How could

you make money if the June and December futures contracts for a particular year trade at $60 and $66, respectively
Business
1 answer:
mario62 [17]2 years ago
5 0

Answer:

$4.50

Explanation:

In order to make a profit from the futures contracts, it would be appropriate to take a long position in the  June futures contract(buy) and take a short position in the December futures contract.

The investor would borrow $60 today which would necessitate paying back $60 plus a half-year in interest payment.

loan repayment=$60*(1+5%/2)=$ 61.50  

In December, sell crude oil at $66 and repay the loan principal and interest

profit=$66-$61.50=$4.50

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