Consider the following futures contract prices for crude oil: 1 year 65.00 Maturity Futures price ($/barrel)...
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Consider the following futures contract prices for crude oil: 1 year 65.00 Maturity Futures price ($/barrel) 2 years 67.6 Assume that the crude oil futures contracts above are correctly priced and that there is no storage cost for crude oil. a) Required: Calculate the annual risk-free interest rate assuming a flat yield curve (same interest rates for all maturities). (2 marks) b) The 1-year futures contract price for S&P 500 is 3,000 while the current S&P 500 index value is 2,952. It is also known that the dividend yield on S&P 500 is 2% per year compounded annually. Assume that you can borrow and lend money at the rate (compounded annually) you calculated in part a). Also, you can buy and short sell the S&P 500 index now. Required: Design an arbitrage strategy and show that the strategy has a zero cost with a sure profit at the end of Year 1. Consider the following futures contract prices for crude oil: 1 year 65.00 Maturity Futures price ($/barrel) 2 years 67.6 Assume that the crude oil futures contracts above are correctly priced and that there is no storage cost for crude oil. a) Required: Calculate the annual risk-free interest rate assuming a flat yield curve (same interest rates for all maturities). (2 marks) b) The 1-year futures contract price for S&P 500 is 3,000 while the current S&P 500 index value is 2,952. It is also known that the dividend yield on S&P 500 is 2% per year compounded annually. Assume that you can borrow and lend money at the rate (compounded annually) you calculated in part a). Also, you can buy and short sell the S&P 500 index now. Required: Design an arbitrage strategy and show that the strategy has a zero cost with a sure profit at the end of Year 1.
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a Required Calculate the annual riskfree interest rate assuming a flat yield curve same interest rat... View the full answer
Related Book For
Introduction to Algorithms
ISBN: 978-0262033848
3rd edition
Authors: Thomas H. Cormen, Charles E. Leiserson, Ronald L. Rivest
Posted Date:
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