Question
Suppose that the spot price of gold is $600. The total cost of insurance and storage for gold is $30 per year, payable in advance.
Suppose that the spot price of gold is $600. The total cost of insurance and storage for gold is $30 per year, payable in advance. The rate of interest for borrowing or lending is 20% per year. If the forward price is $800, and you are interested in arbitrage, you would: (Hint: Check answer with an arbitrage table)
| Sell the spot commodity, lend money, and buy a forward contract | ||
| Borrow money, buy the spot commodity, and buy a forward contract | ||
| Borrow money, buy the spot commodity, and sell a forward contract | ||
| Sell a forward contract, lend money, and buy the spot commodity | ||
| Sell a forward, borrow money, and sell the spot commodity
|
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Managerial Finance
Authors: Alan Parkinson
1st Edition
0750618264, 978-0750618267
