The current price of silver is $30 per ounce. Assume that the storage cost is zero. The
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The current price of silver is $30 per ounce. Assume that the storage cost is zero. The 3-month interest rate is 4% per annum (with continuous compounding). A CME silver futures contract is currently trading at $28 (per ounce) will mature in three months. The size of the contract is 5,000 ounces. Ignoring bid-ask spread and transaction costs, identify the arbitrage opportunity and show how you can capture it (and have net cash inflow today).
Determine the fair 3-month futures price, F*.
Is the futures overpriced or underpriced relative to their fair value F*?
Show the related transactions and the current and future cash flows. (Trade just one contract)
Related Book For
International Financial Management
ISBN: 978-0078034657
6th Edition
Authors: Cheol S. Eun, Bruce G.Resnick
Posted Date: