Question

Consider a 1-year futures contract on an investment
asset that provides no income. It costs $2 per unit to
store the asset, with the payment being made at the end
of the year. Assume the spot price is $450 per unit and
the risk free rate is 7% per annum for all maturities.
Calculate the theoretical futures price. Explain the
arbitrage opportunities when the price is not equal to
the theoretical price.
(3+2)​

Answer 1

Explanation:

unit to

store the asset, with the payment being made at the end unit and

the riskthe

arbitrage opportunities when the price is not equal unit and

the risk free rate is 7% per annum for all maturities.

Calculate the theoretical futures price. Explain the

arbitrage opportunities when the price is not equal to

the theoretical