This paper circulates around the core theme of 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 together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
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
