Fill This Form To Receive Instant Help
Homework answers / question archive / The physical market price of premium olive oil is $30 per litre
The physical market price of premium olive oil is $30 per litre. A futures contract on 100,000 litres with settlement in 1 year is currently priced at $33.00 per litre. The one year interest rate is 6% p.a. (continuously compounded) and it costs $0.50 per litre per year (payable at the beginning of each year) to store olive oil.
You can make riskless arbitrage profit of $61,300 to the nearest dollar) by buying 100,000 litres of physical olive oil, storing it and selling one futures contract.
TRUE or FALSE?
Show all working and explanations.