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The spot price of silver is $30 per ounce. The continuously compounded interest rate is 6% per year. The quoted six-month forward price for silver
The spot price of silver is $30 per ounce. The continuously compounded interest rate is 6% per year. The quoted six-month forward price for silver is $32. (A) What should the arbitrage-free forward price for silver for a forward contract maturing in six months? (B). How would you arbitrage any mispricing? PLEASE SHOW WORK USING A FORMULA FROM SCREENSHOT BELOW
L = Lo - (1 + 5)m (1) m 11 Ls = Loe (2) Margin Buy MV A - Loan MVA (3) MVA - Loan Margin Short = Loan (4) F = Soert (5) V = S- Fer(1-1) (6) Fnear = F distanze Tnear-Taistand) (7) F = Soel(+9)-(8+y)]T (8) (9) noas q= PASAF foar 1 D = - X- P i=1 72 t: x CF xe-rxt, (10) Vs = PVFloat - PVFix (11) LT, = Loc"Ty-T2 (12) LT, = (Lo . e"; 11). e(FT3-11)-(Ta-Ti) (13) (14) ", - . FT2-T1 = T2 - T Notionalx (Reference Rate-fFRA)Time Period (15) is = 1-BN B1 + B2 + .. + BN (16)Step by Step Solution
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