Question

The spot price of gold is currently $1200. The current futures price with 6 months to...

The spot price of gold is currently $1200. The current futures price with 6 months to maturity $1300. The annual interest rate with semi-annual compounding is 6%. There are no storage costs. What arbitrage profit can be made?

Homework Answers

Answer #1

​​​​​

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Question 19 Revision booklet: Assume that the spot price of gold is $1,500 per ounce, the...
Question 19 Revision booklet: Assume that the spot price of gold is $1,500 per ounce, the risk-free interest rate is 2%, and storage and insurance costs are zero. a) What should be the forward price of gold for delivery in 1 year? b) If the futures price is $1550, develop a strategy that can bring risk-free arbitrage profits. c) Calculate the profit that you can make by following that arbitrage strategy.
The spot of gold is currently $1,970 per ounce. The forward price (long or short) for...
The spot of gold is currently $1,970 per ounce. The forward price (long or short) for delivery in one year is $1,980. An arbitrageur can borrow or invest money at 4% (semi-annual compounding rate). What should the arbitrageur do? Assume that the cost of storing gold is zero and that gold can be borrowed for a cost based on the spot price of 1% semi-annual, payable in cash when the gold is returned.
Assume that the only cost (or opportunity cost) associated with gold is the “interest on the...
Assume that the only cost (or opportunity cost) associated with gold is the “interest on the money” if you own gold. There are no storage costs and the convenience yield is zero. Suppose you can borrow or lend money at 10 percent per annum (continuous compounding) if you buy / sell gold. Today's price of gold is $1,320 per ounce, and there are also gold futures contracts available. The 6-month gold futures is trading at $1,370 and the 12-month gold...
3. You observe that the current spot price of gold is TL400 per ounce. You also...
3. You observe that the current spot price of gold is TL400 per ounce. You also observe that the yield curve is flat and all maturities up to one year have an interest rate of 12 percent. Since gold is a popular underlying asset in the derivatives markets, you are interested in identifying any mispricing that may allow you to earn arbitrage profits. When you look up gold forward contract prices, you see that there is a contract with a...
The spot price of light, sweet crude oil is $96.24 per bbl., and the futures price...
The spot price of light, sweet crude oil is $96.24 per bbl., and the futures price of the NYMEX March light, sweet crude oil futures contract is $96.37 per bbl. This contract expires in 4 months. The continuously compounded 4-month risk-free rate is 2.56% per year. The storage cost is $1.22 per barrel for 4 months, payable in advance. What is the arbitrage profit per 1,000 bbl.? Ignore transactions costs.
The spot price of gold is $1,975 per ounce. Gold storage costs are $1.80 per ounce...
The spot price of gold is $1,975 per ounce. Gold storage costs are $1.80 per ounce per year payable monthly in advance. Assuming that continuously compounded interest rates are 4% per year, the futures price of gold for delivery in 2 months is closest to: Select one: $1,989.51 $1,988.51 $1,975.51
Consider a forward contract on gold. Each contract covers 100 ounces of gold and matures one...
Consider a forward contract on gold. Each contract covers 100 ounces of gold and matures one year from now. Suppose it costs $2 per ounce per year to store gold with the payment being made at the end of the year. Assume that the spot price of gold is $1300 per ounce, the continuously compounded risk-free interest rate is 4% per annum for all maturities. a) In the absence of arbitrage, find the current forward price. Show your calculations. b)...
Consider a forward contract on gold. Each contract covers 100 ounces of gold and matures one...
Consider a forward contract on gold. Each contract covers 100 ounces of gold and matures one year from now. Suppose it costs $2 per ounce per year to store gold with the payment being made at the end of the year. Assume that the spot price of gold is $1300 per ounce, the continuously compounded risk-free interest rate is 4% per annum for all maturities. a) In the absence of arbitrage, find the current forward price. Show your calculations. b)...
You work as a trader for the arbitrage desk at Goldman Sachs, monitoring spot and futures...
You work as a trader for the arbitrage desk at Goldman Sachs, monitoring spot and futures foreign exchange rates. At 9am Eastern time you observe the following market prices and rates. The spot exchange rate between US$ and Canadian dollar is $1.1100/C$, while futures price of Canadian dollar for the contract maturing in 6 months is $1.0400/C$. The US 6-month interest rate is 6.5% per annum, while Canadian 6-month interest rate is 3.5% per annum. Both interest rates are based...
The spot price of gold today is $1,505 per ounce, and the futures price for a...
The spot price of gold today is $1,505 per ounce, and the futures price for a contract maturing in seven months is $1,548 per ounce. Suppose ACG puts on a futures hedge today and lifts the hedge after five months. What is the futures price five months from now? Assume a zero basis in your answer.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT