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For a silver futures contract that matures one year from now, the futures price today is $21 per oz. Suppose storage costs are 1% per
For a silver futures contract that matures one year from now, the futures price today is $21 per oz. Suppose storage costs are 1% per year and income is 0%, and the riskfredrate is 4% per year. (a) (4 points) What is the current spot price per oz. if there are no arbitrage opportunities? (b) (7 points) Construct an arbitrage strategy if the spot price is $3 lower than your answer in part (a). Outline the transactions in your strategy, and calculate the casbelow today and the sasblowin a year (ignore margin requirements). Show your calculations. For a silver futures contract that matures one year from now, the futures price today is $21 per oz. Suppose storage costs are 1% per year and income is 0%, and the riskfredrate is 4% per year. (a) (4 points) What is the current spot price per oz. if there are no arbitrage opportunities? (b) (7 points) Construct an arbitrage strategy if the spot price is $3 lower than your answer in part (a). Outline the transactions in your strategy, and calculate the casbelow today and the sasblowin a year (ignore margin requirements). Show your calculations
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