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Question 1 (a) The bid and ask prices of physical platinum are currently trading at $1,050 / $1,060 per troy ounce. The storage is charged $10 per troy ounce per year payable semi-annually in advance. The interest rate is 4.6% per annum. Calculate the initial value and the fair bid and ask prices of a 12-month forward contract. (4 marks) (b) Can you detect any arbitrage opportunity if a market maker has quoted the bid and ask prices of a 12-month platinum forward at $1,120 / $1,130? Verify your trading positions taken at each point in time. (9 marks) (c) A short position was executed at the forward price calculated in (a). After 8 months, the physical platinum price has risen 5% and the interest rate remains unchanged. Determine the value of the short forward position. Is it a profit or loss? (3 marks) (d) Are there any differences between futures and forward prices if futures prices are correlated to interest rates? Explain your answer. (4 marks) Question 1 (a) The bid and ask prices of physical platinum are currently trading at $1,050 / $1,060 per troy ounce. The storage is charged $10 per troy ounce per year payable semi-annually in advance. The interest rate is 4.6% per annum. Calculate the initial value and the fair bid and ask prices of a 12-month forward contract. (4 marks) (b) Can you detect any arbitrage opportunity if a market maker has quoted the bid and ask prices of a 12-month platinum forward at $1,120 / $1,130? Verify your trading positions taken at each point in time. (9 marks) (c) A short position was executed at the forward price calculated in (a). After 8 months, the physical platinum price has risen 5% and the interest rate remains unchanged. Determine the value of the short forward position. Is it a profit or loss? (3 marks) (d) Are there any differences between futures and forward prices if futures prices are correlated to interest rates? Explain your answer. (4 marks)