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You are a dealer in kryptonite and are contemplating a trade in a forward observe that the current spot price per ounce of kryptonite
You are a dealer in kryptonite and are contemplating a trade in a forward observe that the current spot price per ounce of kryptonite is $180.00, the forward price for delivery of one ounce of kryptonite in one year is $205.20, and annual carrying costs of the metal are 4% of the current spot price. a. Can you infer the annual return on a riskless zero-coupon security implied by the Law of One Price? b. Can you describe a trading strategy that would generate arbitrage profits for you if the annual return on the riskless security is only 5%? What would your arbitrage profit be, per ounce of kryptonite?
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