A 1-Year Oil Futures Contract Is Selling for $74

question 10

Multiple Choice

A 1-year oil futures contract is selling for $74.50. Spot oil prices are $68, and the 1-year risk-free rate is 3.25%.
Based on the above data, which of the following sets of transactions will yield positive riskless arbitrage profits?

• A) Buy oil in the spot market with borrowed money, and sell the futures contract.
• B) Buy the futures contract, and sell the oil spot and invest the money earned.
• C) Buy the oil spot with borrowed money, and buy the futures contract.
• D) Buy the futures contract, and buy the oil spot using borrowed money.

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Definitions:

Control Group

In an experiment, the group that is not exposed to the treatment, serving as a comparison point for assessing the effect of that treatment.

Independent Variable

In an experiment, it is the variable that is controlled or changed to test its effects on the dependent variable.

Chocolate

A sweet, typically brown food preparation of roasted and ground cacao seeds, often sweetened and consumed as confectionery.

Medical Placebos

Substances with no therapeutic effect that are used in clinical trials to compare the effects of actual drugs on patients' health conditions.