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Medium · Market Microstructure · Quant Trader interview question · futures, basis, cost-of-carry, arbitrage
You are a trader analyzing the futures basis for a commodity. The current spot price of the commodity is 100 dollars. The futures contract expiring in 3 months is trading at 105 dollars. The risk-free interest rate is 4% per annum, continuously compounded. Assuming no storage costs or dividends, what is the approximate implied cost of carry (as a percentage per annum) included in the futures price, beyond the risk-free rate? Assume a year has exactly 365 days.