MAKE SURE TO ANSWER PART B USING NUMBERS. THANK YOU. Consider a one-year forward contract...
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MAKE SURE TO ANSWER PART B USING NUMBERS. THANK YOU.
Consider a one-year forward contract on gold. Suppose that it costs $2 per ounce per year to store gold with payment being made at the end of the year. Assume that the spot price is $450 per ounce and the risk-free rate is 7% per annum for all maturities. Assume continuous compounding.
a) What is the forward price F(0,1) ? b) What are the possible arbitrage opportunities when the forward price is different
from the one found in a.?
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