Question: If the spot price of gold is 1500 per

If the spot price of gold is $ 1500 per troy ounce, the risk- free interest rate is 4 percent, and storage and insurance costs are zero, what should the forward price of gold be for delivery in one year? Use an arbitrage argument to prove your answer, and include a numerical example showing how you could make risk- free arbitrage profits if the forward price exceeded its upper-bound value.

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  • CreatedJune 21, 2015
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