GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
11th Edition
ISBN: 9781260201550
Author: Bodie
Publisher: MCG
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Question
Chapter 23, Problem 18PS
a.
Summary Introduction
To compute: The forward price of gold for delivery in 1 year when the spot price of gold is $1,500 per troy ounce and interest rate is 2%.
Introduction:
Forward price: It is the price of the underlying asset, commodity or currency decided by the buyer and seller of the forward contract. This forward price comes into effect on the predetermined date in future.
b.
Summary Introduction
To compute: The risk-free arbitrage profits when the forward price is $1550.
Introduction:
Arbitrage profit: It is the profit earned by exploiting the prices differences of securities in similar or different market.
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Students have asked these similar questions
a. If the spot price of gold is $980 per troy ounce, the risk-free interest rate is 7%, and storage and insurance costs are zero, what
should be the forward price of gold for delivery in one year? (Round your answer to 2 decimal places.)
Forward price
b. Calculate risk-free arbitrage profits if the forward price is $1,080. (Round your final answer to nearest whole dollar amount.)
Profit
consider a one-year forward contract on gold. Suppose that it costs $2 per ounce per year to store gold with payment being made at the end of the year. Assume that the spot price is $450 per ounce and the risk-free rate is 7% per annum for all
maturities. Assume continuous compounding. (a) What is the forward price F (0, 1) that does not result in arbitrage profit? (b) If the forward price is $460, do you get any arbitrage profit opportunity? If so, what is your strategy? (You need to provide
more than "buy low, sell high".)
Suppose the gold price is $300/oz., the 1-year forward price is 310.686, and the continuously compounded risk-free rate is 5%.
a. What is the lease rate?
b. Demonstrate a cash-and-carry strategy that provides the zero cash flow at time 0 and the maturity date. (You borrow to buy gold, sell the gold forward, and lend the gold, earning the lease rate.)
c. What is the return on a cash-and-carry strategy in which gold is not loaned? (You borrow to buy gold and sell the gold forward.)
Chapter 23 Solutions
GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
Ch. 23 - Prob. 1PSCh. 23 - Prob. 2PSCh. 23 - Prob. 3PSCh. 23 - Prob. 4PSCh. 23 - Prob. 5PSCh. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Prob. 8PSCh. 23 - Prob. 9PSCh. 23 - Prob. 10PS
Ch. 23 - Prob. 11PSCh. 23 - Prob. 12PSCh. 23 - Prob. 13PSCh. 23 - Prob. 14PSCh. 23 - Prob. 15PSCh. 23 - Prob. 16PSCh. 23 - Prob. 17PSCh. 23 - Prob. 18PSCh. 23 - Prob. 19PSCh. 23 - Prob. 20PSCh. 23 - Prob. 21PSCh. 23 - Prob. 22PSCh. 23 - Prob. 23PSCh. 23 - Prob. 24PSCh. 23 - Prob. 25PSCh. 23 - Prob. 26PSCh. 23 - Prob. 1CPCh. 23 - Prob. 2CPCh. 23 - Prob. 3CPCh. 23 - Prob. 4CPCh. 23 - Prob. 5CPCh. 23 - Prob. 6CPCh. 23 - Prob. 7CPCh. 23 - Prob. 8CP
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