2. You work at an energy-focused Hedge Fund. Your hedge fund offers monthly redemptions, so liquidity...
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2. You work at an energy-focused Hedge Fund. Your hedge fund offers monthly redemptions, so liquidity is of high priority. You make a recommendation to purchase 12,000 contracts of Crude Oil expiring in May 2024 (exactly 1 year from now) at a price of $100 per barrel. The size of each crude oil contract is 1,000 barrels. You must post $5,000 in initial margin per contract of crude oil. a. How many times is this investment levered? b. It is now October 2023, one month before your futures contracts expire and the spot price of oil is trading at $120 per barrel. The risk-free rate is 4%, the 1-month storage cost is 3%, but your November 2023 future is now trading at $108! What is the implied convenience yield? c. If there was no convenience yield, where would the November 2023 futures contract be priced? 2. You work at an energy-focused Hedge Fund. Your hedge fund offers monthly redemptions, so liquidity is of high priority. You make a recommendation to purchase 12,000 contracts of Crude Oil expiring in May 2024 (exactly 1 year from now) at a price of $100 per barrel. The size of each crude oil contract is 1,000 barrels. You must post $5,000 in initial margin per contract of crude oil. a. How many times is this investment levered? b. It is now October 2023, one month before your futures contracts expire and the spot price of oil is trading at $120 per barrel. The risk-free rate is 4%, the 1-month storage cost is 3%, but your November 2023 future is now trading at $108! What is the implied convenience yield? c. If there was no convenience yield, where would the November 2023 futures contract be priced?
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Answer rating: 100% (QA)
a To determine the leverage of the investment we need to calculate the total notional value of the contracts and compare it to the initial margin post... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0470161012
9th Canadian Edition, Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.
Posted Date:
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