Finance-pricing forwards and futures | Finance 560 | Colorado State University–Global Campus

Finance-pricing forwards and futures | Finance 560 | Colorado State University–Global Campus


Option #1: 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?

Complete your response in 2-4 pages using Microsoft Word or Excel. For calculations, you must show work to receive credit. Your well-written response should be formatted according to CSU-Global Guide to Writing and APA Requirements (Links to an external site.)Links to an external site., with any sources properly cited. Upload your completed work to the Week 3 Assignments page.

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