Assume that there is no storage or other carrying costs/value for corn. Assume that corn is...
Assume that there is no storage or other carrying costs/value for corn. Assume that corn is not perishable, that is it can be stored and used later and that the continuous compounded risk-free rate is 20% per year.
If a 6-month corn future currently costs $4.75 a bushel and the spot price currently costs $4.50 explain what portfolio a trader should construct to take advantage of these prices.
Homework Answers
first we will calculate theotrical futures price
F=Se^rt
where s is spot price
r is risk free rate
= 4.5*e^0.2*6/12 =4.9732
but actual futures price is 4.75 so futures are underpriced
arbitrage portfolio is long futures short in cash market and lend money
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Assume that there is no storage or other carrying costs/value
for corn. Assume that corn is...
Assume that there is no storage or other carrying costs/value for corn. Assume that corn is...
Assume that there is no storage or other carrying costs/value for corn. Assume that corn is not perishable, that is it can be stored and used later and that the continuous compounded risk-free rate is 20% per year. If a 6-month corn future currently costs $4.75 a bushel and the spot price currently costs $4.50. Suppose that investors had to pay a short sale fee whenever they short a contract. Assume that this fee was calculated like a carrying cost....
Assume that there is no storage or other carrying costs/value for corn. Assume that corn is...
Assume that there is no storage or other carrying costs/value for corn. Assume that corn is not perishable, that is it can be stored and used later and that the continuous compounded risk-free rate is 20% per year. If a 6-month corn future currently costs $4.75 a bushel and the spot price currently costs $4.50. Suppose that investors had to pay a short sale fee whenever they short a contract. Assume that this fee was calculated like a carrying cost....
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