18. If the spot price of gold is $880 per troy ounce, the risk-free interest rate is...

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18. If the spot price of gold is $880 per troy ounce, the risk-free interest rate is 4%, and storage and insurance costs are zero, what should the forward price of gold be for delivery in 1 year? Use an arbitrage argument to prove your answer. Include a numerical example showing how you could make risk-free arbitrage profits if the forward price exceeded its upper bound value.

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Investments

ISBN: 9780077261450

8th Edition

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

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