A trader owns gold as part of a long-term investment portfolio. The trader can buy gold for
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A trader owns gold as part of a long-term investment portfolio. The trader can buy gold for $250 per ounce and sell gold for $249 per ounce. The trader can borrow funds at 6% per year and invest funds at 5.5% per year. (Both interest rates are expressed with annual compounding.) For what range of one-year forward prices of gold does the trader have no arbitrage opportunities?
Assume there is no bid-offer spread for forward prices.
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