BESTOIL company consumes 1,000,000 barrels of oil annually. Barrel of oil is traded at $ 49.25 in the spot market. Oil futures contracts with 1 year maturity are traded at USD 54.75 on the Chicago stock exchange. BESTOIL can borrow from banks at 7% annually and if the storage cost of oil is 1.5 USD for 1 barrel, what should the strategy of the firm be?
BESTOIL company consumes 1,000,000 barrels of oil annually. Barrel of oil is traded at $ 49.25 in the spot market. Oil futures contracts with 1 year maturity are traded at USD 54.75 on the Chicago stock exchange. BESTOIL can borrow from banks at 7% annually and if the storage cost of oil is 1.5 USD for 1 barrel, what should the strategy of the firm be?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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BESTOIL company consumes 1,000,000 barrels of oil annually. Barrel of oil is traded at $ 49.25 in the spot market. Oil futures contracts with 1 year maturity are traded at USD 54.75 on the Chicago stock exchange. BESTOIL can borrow from banks at 7% annually and if the storage cost of oil is 1.5 USD for 1 barrel, what should the strategy of the firm be?
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