Assignment: Finance-Pricing Forwards And Futures
Respond to the following questions.
1. Suppose there is an active lease market for gold in which arbitrageurs can short or lend out gold at a lease rate of 1%. Assume gold has no other costs/benefits of carry. Consider a three-month forward contract on gold.
1. If the spot price of gold is $360/oz and the three-month interest rate is 4%, what is the arbitrage-free forward price of gold?
2. Suppose the actual forward price is given to be $366/oz. Is there an arbitrage opportunity? If so, how can it be exploited?
2. A three-month forward contract on a non-dividend-paying asset is trading at $95, while the spot price is $82.
1. Calculate the implied repo rate.
2. Suppose it is possible for you to borrow at 8% for three months. Does this give rise to any arbitrage opportunities? Why or why not?
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.