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 oi

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 oi

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)?

Answer
spot price (current)
cost / Year
future contract(barrels)
price of future contract
Transation cost per barrel

$40.00
8%
1,000.00
$41.00
$0.15

spot price future
43350
41000
2350

Yest it would be profit for the trade because spot price bigger than future contract.
profit

2350


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