Business, 22.09.2020 16:01 arcanos616p53hw1
The spot price of gold is currently $1,782.90 and the risk free rate is at 8%. The gold will provide income over the next year of $30 every 3 months, but it will cost $20 per quarter to store. The storage costs will be incurred at the end of each quarter and the income payments will be received at the end of each 3 month period. Currently, a forward contract with a 9 month maturity is priced at $1,976.80. Assume regular compounding. a. Is the market at, above or below full carry? Is this an example of the basis or the spread? b. Discuss the process of taking advantage of this arbitrage opportunity and the resulting gain or loss. c. If this forward were correctly priced (using the “model” forward price) and there were no storage costs or income payments, what would be the implied repo rate?
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The spot price of gold is currently $1,782.90 and the risk free rate is at 8%. The gold will provide...
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