Question
The spot price for gold is $1,200 and the the 6-month risk-free rate is 3% continuously compounded. (1) Calculate the 6-month Futures price of gold.
The spot price for gold is $1,200 and the the 6-month risk-free rate is 3% continuously compounded.
(1) Calculate the 6-month Futures price of gold.
(2) Describe a trading strategy to make arbitrage profits if the quoted futures price is $10 lower than the fair value you calculate in Part (1). Show the cash flows to each element of your trading strategy.
(3) Describe a trading strategy to make arbitrage profits if the quoted futures price is $10 less than the fair value you calculate in Part(1). Show the cash flows to each element of your trading strategy.
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