Question: Anyone can borrow or lend cash for 1% a month, compounded monthly. Prices for silver are listed below.
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(Today)Day 0 prices
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Futures contract (expiring on the 9th of each month)
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Cash (March 9)
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April 2005
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May 2005
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June 2005
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$7.08/oz
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$7.15/oz
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$7.22/oz
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$7.28/oz
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1) This market is not in equilibrium. How could you earn the largest possible arbitrage profit, assuming that the arbitrate opportunity is going to disappear within a few minutes as other trader catch on?
2) What would be your per oz. profit?