Risk Premium and Expected Spot Price Calculation in Oil Futures Market

What is the expected spot price at expiration in the Oil futures market?

The expected spot price at expiration, considering the current spot price, the price of the futures contract, and the risk premium, is $89.3 per barrel. To calculate the expected spot price at expiration, we need to adjust the futures price by subtracting the risk premium.

Calculation of Expected Spot Price:

Given Data:

- Spot price on November 7: $88 per barrel

- Price of December Oil futures: $89.5 per barrel

- Risk premium: $0.20 per barrel

Step-by-Step Calculation:

1. Subtract the risk premium from the futures price:

$89.5 - $0.20 = $89.3 per barrel

Therefore, the expected spot price at expiration is $89.3 per barrel.

In conclusion, the expected spot price at expiration, considering the current spot price, the price of the futures contract, and the risk premium, is $89.3 per barrel.