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Due 2 9 September 2 0 2 3 Problem 1 . 1 Assume that the spot price of gold is $ 2 , 0 3

Due 29 September 2023
Problem 1.1
Assume that the spot price of gold is $2,032 per ounce (as of 24-Jan-2024). Suppose that the market quotes a forward contract on gold with delivery in 1 year at $2,100. The risk-free interest rate is r=5.0%.
i) Is there an arbitrage opportunity? If yes, describe the steps required to realize the arbitrage. Neglect the storage cost.
ii) Consider now the case when the forward price is $2,200. Is there an arbitrage opportunity? If yes, describe the steps required to realize the arbitrage.
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