The bid price for spot gold is $ 1820/oz, the asked price for spot gold is $ 1822/oz and the yearly interest rate is 6%. The forward contract calls for the delivery of 100 oz. of gold in three months. The lender of gold will allow only 50% of the proceeds from a short sale. Also assume that the total transaction cost of buying or selling 100 oz. of gold, and trading one forward contract, is $1/oz. There is no carry return. The range of possible forward prices per ounce of gold that precludes arbitrage is then: O $1832.65 - $1850.33 O $1821.21-$1823.21 O $1928.20 - $1932.32 O $1846.30-$1848.30
The bid price for spot gold is $ 1820/oz, the asked price for spot gold is $ 1822/oz and the yearly interest rate is 6%. The forward contract calls for the delivery of 100 oz. of gold in three months. The lender of gold will allow only 50% of the proceeds from a short sale. Also assume that the total transaction cost of buying or selling 100 oz. of gold, and trading one forward contract, is $1/oz. There is no carry return. The range of possible forward prices per ounce of gold that precludes arbitrage is then: O $1832.65 - $1850.33 O $1821.21-$1823.21 O $1928.20 - $1932.32 O $1846.30-$1848.30
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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Transcribed Image Text:The bid price for spot gold is $ 1820/oz, the asked price for spot gold is $1822/oz and the yearly interest rate is 6%. The forward
contract calls for the delivery of 100 oz. of gold in three months. The lender of gold will allow only 50% of the proceeds from a short
sale. Also assume that the total transaction cost of buying or selling 100 oz. of gold, and trading one forward contract, is $1/oz. There is
no carry return. The range of possible forward prices per ounce of gold that precludes arbitrage is then:
O $1832.65 - $1850.33
O $1821.21-$1823.21
O $1928.20 - $1932.32
O $1846.30 - $1848.30
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