ZuoTi.Pro
Question

8. Suppose current spot price of oil is 895 per barrel, the six-month forward price of oil is $94 per barrel, and the current risk-free rate for 6 months is 2.00% per annum. What effective six-month borrowing rate for oil does this imply? Describe the actions you would take to achieve this borrowing rate and demonstrate that these actions result in a borrowing at this rate.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

SPot

0 0
Add a comment
Know the answer?
Add Answer to:
8. Suppose current spot price of oil is 895 per barrel, the six-month forward price of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 8. Suppose current spot price of oil is 895 per barrel, the six-month forward price of...

    8. Suppose current spot price of oil is 895 per barrel, the six-month forward price of oil is $94 per barrel, and the current risk-free rate for 6 months is 2.00% per annum. What effective six-month borrowing rate for oil does this imply? Describe the actions you would take to achieve this borrowing rate and demonstrate that these actions result in a borrowing at this rate.

  • The spot price of oil is $50 per barrel and the cost of storing a barrel...

    The spot price of oil is $50 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 (continuously compounded) interest rate is 5% per annum, continuously compounded. What is an upper bound for the one-year futures price of oil?

  • The spot price of oil is $50 per barrel and the cost of the storing a...

    The spot price of oil is $50 per barrel and the cost of the storing a barrel of oil for one year $3. payable at the end of the year. The risk free interest rate is 5% per annum continuously compounded. What is an upper bound for the one year futures price of oil? Show your calculations in excel preferably.

  • Consider a six-month forward contract on a non-dividend paying stock. Assume the current stock price is...

    Consider a six-month forward contract on a non-dividend paying stock. Assume the current stock price is $50 and the risk-free interest rate is 7.84% per annum with continuous compounding. Suppose the price of this six-month forward price is $53.50. Show that it creates an arbitrage opportunity?   Write down the complete strategy for an arbitrageur --- you must list down all the actions that are required now and later and demonstrate how arbitrageur earns a risk-less profit.

  • 50.The oil price is currently $95 per barrel. The risk-free interest rate is 3% per annum,...

    50.The oil price is currently $95 per barrel. The risk-free interest rate is 3% per annum, and the convenience yield of oil is 4% per annum. Consider an oil futures contract with a maturity of 6 months. Assuming the 6 months storage cost is equal to $1.50 per barrel, the no-arbitrage futures price is closest to: (a) 95.02 (b) 95.55 (c) 96.02 (d)96.55

  • Today's spot price of gold is $1,650 per ounce. The quoted six-month forward price for gold...

    Today's spot price of gold is $1,650 per ounce. The quoted six-month forward price for gold is $1,700. The arbitrage profit that you can make today by trading one forward contract and other securities is $6. Assuming no storage cost, what could be the continuously compounded interest rate per annum? 5.26% 5.24% 6.68% 6.80%

  • Problem 5 The current spot rate is EUR/GBP 1.1600 and the six-month forward rate is EUR/...

    Problem 5 The current spot rate is EUR/GBP 1.1600 and the six-month forward rate is EUR/ GBP 1.16300. The six-month interest rate in the UK is 0.40% and the six-month interest rate in the Eurozone is 0.44%. What would the British interest rate have to be per annum so that there would be no arbitrage opportunity? (round up your answer to the 4th digit)

  • Suppose the current USD/euro exchange rate is 1.2000 dollar per euro. The six month forward exchange...

    Suppose the current USD/euro exchange rate is 1.2000 dollar per euro. The six month forward exchange rate is 1.1950. The six month USD interest rate is 1% per annum continuously compounded. Estimate the six month euro interest rate (expressed continuously compounded). Assume six months is 0.5 years.

  • Suppose the spot and six-month forward rates on the South Korean won are W1,304.88 and W1,315.02,...

    Suppose the spot and six-month forward rates on the South Korean won are W1,304.88 and W1,315.02, respectively. The annual risk-free rate in the United States is 5 percent, and the annual risk-free rate in South Korea is 8 percent. What must the six-month forward rate be to prevent arbitrage? (Do not include the South Korean won sign (*). Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Forward ratew

  • It's not 1298.6242 Suppose the spot and six-month forward rates on the South Korean won are...

    It's not 1298.6242 Suppose the spot and six-month forward rates on the South Korean won are SKW 1,304.99 and SKW 1,314.80, respectively. The annual risk-free rate in the United States is 4 percent, and the annual risk-free rate in South Korea is 5 percent. What must the six-month forward rate be to prevent arbitrage? (Do not include the South Korean won sign (SKW). Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Forward rate...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
Active Questions
ADVERTISEMENT