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consider a one - year forward contract on gold. Suppose that it costs $ 2 per ounce per year to store gold with payment being
consider a oneyear forward contract on gold. Suppose that it
costs $ per ounce per year to store gold with payment being made at the end of the year.
Assume that the spot price is $ per ounce and the riskfree rate is per annum for all
maturities. Assume continuous compounding.
a What is the forward price F that does not result in arbitrage profit?
b If the forward price is $ do you get any arbitrage profit opportunity? If so what
is your strategy? You need to provide more than buy low, sell high
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