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  3. the current spot price of copper is $2.7445 per po

The current spot price of Copper is $2.7445 per pound. The storage costs are $0.05 per...

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Finance

The current spot price of Copper is $2.7445 per pound. Thestorage costs are $0.05 per pound per year payable monthly.Physical holding of copper now can yield $0.13 per pound per yearwhich is achievable monthly. The price of a 9-month futurescontract of copper is currently listed as 2.7685. Assume thatinterest rates are 10% per annum and monthly compounded.

a) If the cost-of carry relationship is held under no-arbitrageconditions, what should the 9-month futures price be (4 d.p.)?

b) Is the listed 9-month futures price provide arbitrageopportunity (assume transaction costs are negligible)? Justify.

c) If the listed futures price is correct, what would be theunderlying annual yield.

show all steps ,formula ,and calculations

Answer & Explanation Solved by verified expert
4.0 Ratings (774 Votes)
Answer A The future pricing of a commodity is done using the below formula ie F Se r s c x t Where F the future price of the commodity S the spot price of the commodity e the base    See Answer
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