Suppose the spot price for oil is $40.00/barrel. The cost of carry for one year is 8%, and is an accurate
estimate of what the price of oil would be in one year. If a trader can take a long position in a futures contract (1,000
barrels) for delivery of oil at $41.00 in one year, and the transaction cost is $.15/barrel, is the long position profitable
for the trader? What would be the profit (loss)?
spot price (current)
cost / Year
price of future contract
Transation cost per barrel
spot price future
Yest it would be profit for the trade because spot price bigger than future contract.