Question

It is now January. The current interest rate is 3%. The storage cost of silver is 2%. The June futures price is 1246.3, while the spot price of silver is $1200. Is there any arbitrage opportunity here? If so, how would you exploit it? How much is the profit? Show the steps (10 points)

Answer #1

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The current spot price of silver is $32/oz, the interest rate on
three‐month loans or deposits is 0.75%, and a three‐month futures
contract on silver is currently traded at $32.50/oz. The size of
the contract is 100 oz.
a. Assuming that there is no storage or transaction cost,
determine the theoretical price of the three‐month silver
futures
b. Determine whether an arbitrage opportunity is present in the
market. If so, suggest a trading strategy that would take advantage
of such...

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Calculate the appropriate price for December futures using the
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Demonstrate how we can exploit this arbitrage opportunity (No
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