Question 19 Revision booklet:

Assume that the spot price of gold is $1,500 per ounce, the risk-free interest rate is 2%, and storage and insurance costs are zero.

a) What should be the forward price of gold for delivery in 1 year?

b) If the futures price is $1550, develop a strategy that can bring risk-free arbitrage profits.

c) Calculate the profit that you can make by following that arbitrage strategy.