It is now January. The current interest rate is 3%. The June futures price for gold is

Question:

It is now January. The current interest rate is 3%. The June futures price for gold is $1,246.30, while the December futures price is $1,251. Is there an arbitrage opportunity here? If so, how would you exploit it?

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

Step by Step Answer:

Related Book For book-img-for-question

Essentials of Investments

ISBN: 978-0077835422

10th edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

See More Books

Question Posted: Nov 30, 2017 10:14 AM

See More Questions

The equipment upgrade that Koebel's Family Bakery decided to undertake proved to be a little more expensive than initially budgeted. Natalie, Janet, and Brian had originally thought that the project...
You will recall from Chapter 9 that Emily, Bev, and Doug had originally thought that the equipment upgrade that ABC decided to undertake could be paid for with cash in the bank. Unfortunately, there...
It is now January. The current interest rate is 5%. The June futures price for gold is $946.30, whereas the December futures price is $960.00. Is there an arbitrage opportunity here? If so, how would...
In Problem 12.4 on page 423, you used the percentage of alcohol to predict wine quality. The data are stored in VinhoVerde. From the results of that problem, b 1 = 0.5624 and Sb 1 = 0.1127. a. At the...
The press shown is used to emboss a small seal at E. Knowing that the vertical component of the force exerted on the seal must be 900 N, determine (a) The required vertical force P, (b) The...
In Exercises 1-3, solve the given system of equations using either Gaussian or Gauss-Jordan elimination. 1. X1 + 2X2 - 3X3 = 9 2X1 - X2 + X3 = 0 4x1 - X2 + x3 = 4 2. x - y + z = 0 -x + 3y + z = 5 3x...
Let M be an SDF process and Y a labor income process. Assume E T 0 Mt|Yt|dt < for each finite T. The intertemporal budget constraint is dW = rW dt + ( r)dt +Y dt Cdt + dB. (14.34) (a) Suppose...
Hannon Corporation produces high-performance rotors. It expects to produce 50,000 rotors in the coming year. It has invested $10,000,000 to produce rotors. The company has a required return on...
American Corporation has two equal shareholders, Mr. Freedom and Brave Inc. In addition to their investments in American stock, both shareholders have made substantial loans to American. During the...
Paul Petersen lives in Northern California. He owns a BMW car worth about $20,000. He wants to take a trip to Nevada with his girlfriend Patricia, who lives in Los Angeles. He takes his car into...
Suppose the value of the S&P 500 Stock Index is currently $1,800. a. If the one-year T-bill rate is 3% and the expected dividend yield on the S&P 500 is 2%, what should the one-year maturity futures...
A silver futures contract requires the seller to deliver 5,000 Troy ounces of silver. Jerry Harris sells one July silver futures contract at a price of $28 per ounce, posting a $6,000 initial margin....
Negative pions with kinetic energy T = 100 MeV travel an average distance l = 11 m from their origin to decay. Find the proper lifetime of these pions.
Moving Inc. wants to develop an activity flexible budget for the activity of moving materials. Moving Inc. uses forklifts to move materials from receiving to storeroom and then to production. The...
We are in the tail end of Quarter 3 earnings reporting season in the U.S. markets. Roughly 60 percent of companies that have reported their Q3 earnings so far have reported negative earnings relative...
Below is a running shock tube illustration. 0.1 0.0 | 0.0 4 4 Diaphragm 1 0.5 Image: Shock tube Initial setup 1 3 2 1 Expansion Head Expansion Tail Slip Shock Surface Image: Running Shock Tube...
As you may remember, Holiday Tree Services, Inc. (HTS) has recently entered into a contract with Delish Burger (Delish), whereby HTS is to supply and decorate a Christmas tree in each of Delish...
Understanding various types of leadership styles is important in order to determine personal leadership styles. Reflection: Answer both Compare and contrast 2 leadership styles. State the...
Problems 7079. The purpose of these problems is to keep the material fresh in your mind so that you are better prepared for later sections, a final exam, or subsequent courses such as calculus....
3M Company reports the following financial statement amounts in its 10-K report: a. Compute the receivables, inventory, and PPE turnover ratios for both 2018 and 2017. (Receivables turnover and...
The historical yield spread between AAA bonds and Treasury bonds widened dramatically during the financial crisis. a. If you believed the spread would soon return to more typical historical levels,...
Go to www.tipsinc.com/ficalc/calc.tips. Choose the link for the general-purpose bond calculator. The calculator provides yield to maturity, modified duration, and bond convexity as the bonds price...
Fincorp issues two bonds with 20-year maturities. Both bonds are callable at $1,050. The first bond is issued at a deep discount with a coupon rate of 4% and a price of $580 to yield 8.4%. The second...
Pedro lives in Puerto Rico and had a net taxable income of $35,000 for the year 20X1. Your gross income totals $60,000. What is Pedro's regular income tax for 20X1? a.$4,620 b.$4,900 c.$2,318 d.$2,520
The change in cash is equal to the change in liabilities less the change in equity plus the change in noncash assets. O True False
Tom holds a 5-yr 10%-coupon bond, while his friend Jackson holds a 6- year 8%-coupon bond. They are both concerned about interest rate risk but they do not fully understand how it affects them. Can...

It is now January. The current interest rate is 3%. The June futures price for gold is

Question:

Step by Step Answer:

According to the parity relationship the proper price for Dec...View the full answer

Essentials of Investments

Students also viewed these Accounting questions