If the spot price of gold is $1,500 per troy ounce, the risk-free interest rate is 2%,
Question:
If the spot price of gold is $1,500 per troy ounce, the risk-free interest rate is 2%, and storage and insurance costs are zero, what should be the forward price of gold 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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F 0 S 0 l r f T 1500 x 102 1530 If F 0 1545 you coul...View the full answer
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Related Book For 
Investments
ISBN: 9781259271939
9th Canadian Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus, Lorne Switzer, Maureen Stapleton, Dana Boyko, Christine Panasian
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