Spot price of silver is $26.36/oz and the quoted interest rate is 2.76% for 3 months. There are no storage or transaction costs, but borrowers have to pay 0.5% above the quoted rate. Determine the maximum possible no-arbitrage price for a 3-month futures contract on silver.

Spot price of silver is $26.36/oz and the quoted interest rate is 2.76% for 3 months. There are no storage or transaction costs, but borrowers have to pay 0.5% above the quoted rate. Determine the maximum possible no-arbitrage price for a 3-month futures contract on silver.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 37QA

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Question

Spot price of silver is $26.36/oz and the quoted interest rate is
2.76% for 3 months. There are no storage or transaction costs, but
borrowers have to pay 0.5% above the quoted rate. Determine
the maximum possible no-arbitrage price for a 3-month futures
contract on silver.

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