A. The current price of gold is $300 per ounce. Consider the net cost of carry for gold to be zero. A. The current price of gold is $300 per ounce. Consider the net cost of carry for gold to be zero....

A. The current price of gold is $300 per ounce. Consider the net cost of carry for gold to be zero.

A. The current price of gold is $300 per ounce. Consider the net cost of carry for gold to be zero. The risk-free interest rate is 6 percent. What should be the price of a gold futures contract that expires in 90 days?

B. Using Part A above, illustrate how an arbitrage transaction could be executed if the futures contract is priced at $306 per ounce.

C. Using Part A above, illustrate how an arbitrage transaction could be executed if the futures contract is priced at $303 per ounce.

Answered Same DayDec 25, 2021

Answer To: A. The current price of gold is $300 per ounce. Consider the net cost of carry for gold to be zero....

Robert answered on Dec 25 2021

130 Votes

i. To find the price of Gold future, we use the arbitrage pricing formula. It states that there should not be
any difference between spot and future price after accounting for interest rate and storage cost.
( )
Where F* is theoretical future price,
S is spot price = $300
I is risk free rate = 6% pa
t is time period = 3/12 = 0.25 years
( )
...

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A. The current price of gold is $300 per ounce. Consider the net cost of carry for gold to be zero. A. The current price of gold is $300 per ounce. Consider the net cost of carry for gold to be zero....

Answer To: A. The current price of gold is $300 per ounce. Consider the net cost of carry for gold to be zero....

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