4. The price of gold is currently $1,200 per ounce. Forward contracts are available to buy or sell gold at $1,400 per ounce for delivery in one year. An arbitrageur can borrow money at 10% per annum. Assume continuous compounding.

-Clearly outline the trading strategy to exploit the profitable arbitrage opportunity, if any. What is the profit (per ounce)?

- How does your answer change if storage costs of 2% per annum are incurred? What is the profit (per ounce)?

5. A trader owns gold as part of a long-term investment portfolio. The trader can buy gold for $1250 per ounce and sell gold for $1249 per ounce. The trader can borrow funds at 6% per year and invest funds at 5.5% per year (assume continuous compounding).

- For what range of six-month forward prices of gold does the trader have no arbitrage opportunities? Assume there is no bid-offer spread for forward prices.

6. An 8-month forward contract on a stock is currently priced at $84. The stock currently sells for $80. Assume that the risk-free rate of interest (with continuous compounding) is 10% per annum. Assume that dividends of $0.90 per share are expected after 4 months and 6 months.

- Is there an arbitrage opportunity here?

- If so, how can you engage in a trading strategy to exploit this opportunity? What is the profit from this trading strategy?