are you talking about AM only? i would agree if you are referring to the PM section.
i’m talking about the entire exam
Well, if you look at part B, you’d notice that the futures price was lower than the no arbitrage price, so the only profitable thing to do would be to sell copper short and get long a future… So I assumed that was a “reverse cash-and-carry”…
I agree, In reverse CandC : you borrow and immediately sell the spot, receive cash and invest the cash at RF. At the same time you enter a forward contract on the long side paying the forward price and in-turn receive the underlying commodity. Upon contract expiration, take this commodity and satisfy your short. So, you were given spot and forward prices, RF rate. Difference between the monies earned on the RF rate earned on the short rebate and the forward price (cost) is the arbitrage? IMHO, I think the lease rate was superfluous data!
To go short the commodity you would have to borrow it and pay the lease rate to the lender.
actuaryalfred Wrote: ------------------------------------------------------- > is the profit just S_0 exp((riskfree rate - lease > rate) * T) - F ? Ditto for me. Although, I never explained all the steps…I was working on this in the dying moments of AM piece
Never heard of a reverse cash & carry, but my logic went: Cash & carry must me walk in with cash, walk out with (fill in commodity here). I.e., you’re going long in the spot market. So to reverse it, you need to short the spot, invest at Rf, and go long in the Forward/Futures (whichever option was there). Is this correct?
Of course, I have never heard of anyone doing a reverse cash and carry on copper (which doesn’t mean it doesn’t happen), but you would have to borrow 25 tons of copper/contract. Borrowing 100 oz of gold is pretty easy. 25 tons of copper, not so much.
I think the lender would have to pay the borrower the storage costs in that case, he’s taking 25 tons of crap off his hands 
so cash and carry was 1)borrow to sell short @ 316, buy future @ 313 pay 6% storage fee and get 5% on the lending then you net everything out and you get lie 2+ something right?
If you do the reverse cash-and-carry, you are paying lease rate but the storage fee is irrelevant. You borrow copper and pay the 5%, sell it short at 316, and buy the futures contract. When the futures expires, you take delivery, and return the copper to the lender.
I’ve never done it myself, but in the CFAI book they credit the arbitrageur with storage costs. I assumed it’s because he’s taking the stuff off the other guys hands …
Yeah, well, CFAI also thinks that you can do reverse cash and carry with copper.
I couldn’t remember which was cash and carry and which was reverse cash and carry.
In the interest of time I think I skipped this question completely and now can’t remember the question at all. Can someone help remind me ?
2.21 = 316e[(5% - 6%)/4] - 313 3.79 = 316e[(6% - 5%)/4] - 313 your vote?
first one
oh sh1t, I had the right formula, but I mixed up rf and lending rate when I plugged it in.
first one for sure (Rf-Lc)
It’s funny that I had similar experience. Last semester I had a student in my class who did not show up for more than 2/3 of the class. I failed him and his mom called me and said I have to give him a passing grade so he can graduate. mo34 Wrote: ------------------------------------------------------- > I am not sure why you feel that you have “EARNED > this”. > > You have not earned anything in life, you have to > go out and prove your worth everyday. If you can’t > take care of business on exam day it’s your > problem and not the exam’s problem. Until you can > walk in there and say " I don’t care what they > ask, I 'm acing it either way" you’re not ready > for the “EARNED this” level. > > Reminds me of this student I had in a Mechanical > vibrations class, he comes one day to my office, > > “I’m a senior, I got nothing but A’s so far in > college, you can’t give me a “C” in your class > !!” > > So based on his history, and for doing everything > the syllabus asks for, he wants to get an A. What > a joke !!