Spot price for gold is $500. Forward contracts are available to buy or sell gold at $550 in one year. An arbitrageur can borrow or invest money at 5% per year. Assume that the cost of storing gold is zero and that gold provides no income. (15 pts)

1. What is the theoretical 1 year forward price for?

2. How to set up arbitrage positions? And how much is your profit ?

3. If the one year forward price for gold is $505 rather than $550, how to set up arbitrage positions? And how much is your profit?