Suppose unleaded gasoline is currently trading at $2.40 per gallon. You face an interest rate of 3.80 percent and a carrying cost of $.07 per gallon per month. The current market price of a four-month futures contract on gasoline is $2.90 per gallon. You are evaluating a three-month carry trade opportunity.

a. Determine the present value of the storage costs (PVSC). (Round your answer to 4 decimal places.)

b. Identify what the futures price should be under spot-futures parity. (Do not round intermediate calculations. Round your answer to 3 decimal places.)

c. Calculate the potential profit per gallon. (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Answer rating: 100% (QA)

A Present value of storage cost months storage cost present value factor 11rate no of pe... View the full answer