If the spot price of gold is $ 1500 per troy ounce, the risk- free interest rate

Question:

If the spot price of gold is $ 1500 per troy ounce, the risk- free interest rate is 4 percent, and storage and insurance costs are zero, what should the forward price of gold be for delivery in one year? Use an arbitrage argument to prove your answer, and include a numerical example showing how you could make risk- free arbitrage profits if the forward price exceeded its upper-bound value.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Investments

ISBN: 978-0071338875

8th Canadian Edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus, Stylianos Perrakis, Peter

Question Posted: