Arbitrage Strategies and Loan Calculations

The video tutorial explains how to identify and execute a risk-free arbitrage opportunity using a futures contract for apples. It sets up a scenario with specific market prices and loan interest rates, then demonstrates how to borrow money, buy apples, and sell a futures contract to guarantee a profit. The tutorial concludes by calculating the profit and discussing the conditions under which arbitrage is possible.

What is the delivery date specified in the futures contract example?

• September 30th

• December 1st

• November 15th

• October 20th

What is the current market price for apples today in the example?

• $150

• $200

• $250

• $300

How much interest would you pay on a $200 loan after one year?

• $30

• $10

• $20

• $40

What is the first step in the arbitrage strategy described?

• Buy a futures contract

• Store apples in a warehouse

• Borrow $200

• Sell apples in the market

What is the agreed selling price for the apples in the futures contract?

• $250

• $270

• $300

• $320

How much profit is guaranteed from the arbitrage strategy after one year?

• $60

• $70

• $50

• $80

What is the total amount owed on the loan after one year?

• $220

• $210

• $230

• $200

What condition must be met for a risk-free profit in futures pricing?

• Settlement price is less than $200

• Settlement price is less than $220

• Settlement price is exactly $220

• Settlement price is more than $220

What happens if the growth in price is more than the cost of borrowing?

• No profit is made

• A loss is incurred

• Market remains stable

• Arbitrage opportunity exists

What is the cost of borrowing $200 in the given scenario?

• $25

• $10

• $15

• $20