Explanation:
The potential arbitrage profit is $1.11 (= $38.25 − $37.14). The futures price under the no-arbitrage principle is shown here.
(Book 3, Module 37.2, LO 37.e)
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The spot price for WTI Crude Oil is $34.50 per barrel, and the one-year futures contract's price is $38.25. You can borrow at 4.5%, and the annual storage cost is 3%. What is the potential arbitrage profit?
A
$1.04 per barrel.
B
$1.11 per barrel.
C
$1.16 per barrel.
D
$1.23 per barrel.
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