A one-year gold futures contract is selling for $1,247. Spot gold prices are $1,200 and the one-year risk-free rate is 2%. a) According to spot-futures parity, what should be the futures price? b) What risk-free strategy can investors use to take advantage of the futures mispricing, and what would be the profits from that strategy?
A one-year gold futures contract is selling for $1,247. Spot gold prices are $1,200 and the one-year risk-free rate is 2%. a) According to spot-futures parity, what should be the futures price? b) What risk-free strategy can investors use to take advantage of the futures mispricing, and what would be the profits from that strategy?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A one-year gold futures contract is selling for $1,247. Spot gold prices are $1,200 and the one-year risk-free rate is 2%.
a) According to spot-futures parity, what should be the futures price?
b) What risk-free strategy can investors use to take advantage of the futures mispricing, and what would be the profits from that strategy?
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