If the spot price of gold is $980 per troy ounce, the risk-free interest rate is 4%,
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If the spot price of gold is $980 per troy ounce, the risk-free interest rate is 4%, and storage and insurance costs are zero, what should the forward price of gold be for delivery in 1 year? Use an arbitrage argument to prove your answer. 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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F 0 S 0 l r f T 980 104 101920 If F 0 1025 you could earn ...View the full answer
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