It is now December 2017. The current interest rate is 2%. The May 2018 futures price...
It is now December 2017. The current interest rate is 2%. The May 2018 futures price for gold is $1,500, whereas the December 2018 futures price is $1510. Is here an arbitrage possibility here? If so, how would you exploit it?
Homework Answers
Answer:
The spot price implied by the December futures price is
= 1510 / [1 + 0.02] = 1,480.39
which is greater than the spot price implied by the May futures price:
1500 / [1 + 0.02]^½ = 1500 / 1.01 = 1,485.15
So since the actual December futures price is too low, the arbitrage involves selling the May futures contract and buying the December futures contract.
Add Answer to:
It is now December 2017. The current interest rate is 2%. The
May 2018 futures price...
It is now January. The current annual interest rate is 3%. The June futures price for gold is $1,246.30, while th...
It is now January. The current annual interest rate is 3%. The June futures price for gold is $1,246.30, while the December futures price is $1,251. Assume the June contract expires in exactly 6 months and the December contract expires in exactly 12 months. a. Calculate the appropriate price for December futures using the parity relationship? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Price for December futures L b. Is there an arbitrage opportunity here?...
6. value 10.00 points It is now January. The current interest rate is 6.0%. The June...
6. value 10.00 points It is now January. The current interest rate is 6.0%. The June futures price for gold is $1648.70, while the December futures price is $1.654. Assume the June contract expires in exactly 6 months and the December contract expires in exactly 12 months a. Calculate the appropriate price for December futures using the parity relationship? (Do not round intermediate calculations. Round your answer to 2 decimal place. Price for December futures b. Is there an arbitrage...
Question 4 (Final 2011: 10 points) (a) (3 points) The spot price for gold is $650. The...
Question 4 (Final 2011: 10 points)
(a) (3 points) The
spot price for gold is $650. The risk-free interest rate is 5%.
What is the futures price for gold for a six-month contract?
(b) (5 points) The
six-month futures price in the market is $682.50. Is there an
arbitrage opportunity here? Why? If so how would you exploit it?
Explain.
(c) (2
points) Consider the formula on the formula sheet:
What does ‘c’ represent? What is ‘c’
likely to be for gold? What...
The current spot price of gold is $1200 per ounce. The riskless interest rate is 1%...
The current spot price of gold is $1200 per ounce. The riskless interest rate is 1% per month. For simplicity, assume there are no storage/security costs of gold. a) If you need to buy the gold in 8 months’ time, which position (long or short) will you take in the futures market to hedge the price risk of the gold? b) What is the arbitrage-free futures price for the delivery of gold in 8 months’ time? c) If you see...
A) The spot price of the British pound is currently $2.00. If the risk-free interest rate...
A) The spot price of the British pound is currently $2.00. If the risk-free interest rate on 1-year Government bonds is 4% in the United States and 6% in the United Kingdom, what must be the forward price of the pound for delivery 1 year from now? B) Assume that the spot price of gold is $1,500 per troy ounce, the risk-free interest rate is 2%, and storage and insurance costs are zero. 1) What should be the forward price...
PROBLEM 1. Spot price of gold is $1,407-40/oz. The total interest rate on three-month loans and...
PROBLEM 1. Spot price of gold is $1,407-40/oz. The total interest rate on three-month loans and deposits is 0.75% (i.e. $100 borrowed today would require a payment of $100.75 in three months). a. Assuming no storage cost and no transaction cost, determine the no-arbitrage price for a gold futures contract maturing three months from now. b. Suppose that the three-month gold futures contract is actually traded at $1,420.20/oz. Determine if an arbitrage opportunity is present. If so, describe a trading...
The current gold price for immediate delivery (i.e., gold spot price) is $1440 (bid) and $1450...
The current gold price for immediate delivery (i.e., gold spot price) is $1440 (bid) and $1450 (ask) per ounce. A one-year forward contract of gold trades at a forward price of $1500 (bid) and $1510 (ask) per ounce. In a long forward contract you will receive delivery of one ounce of gold in one year and you will need to pay $1510 at the time of delivery. Alternatively, in a short forward position you will need to deliver one ounce...
p Chapter 10: Futures Contract and Swaps Exercise: 5, 6, 12, 15, and 20 5.Consider the...
p
Chapter 10: Futures Contract and Swaps Exercise: 5, 6, 12, 15, and 20 5.Consider the futures contract written on the S&P 500 index and maturing in 6 months. The interest rate is 3% per 6-month period, and the future value of dividends expected to be paid over the next 6 months is $15. The current index level is 1,425. Assume that you can short sell the S&P index. a. Suppose the expected rate of return on the market is...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New York Commodity Exchange (CMX). The contract size is 100 ounces. The initial margin is S3,000, and the maintenance margin is $1,500. 1.a. Suppose that you enter into a long futures contract to buy December for $500 per ounce on the CMX What change in the futures price will lead to a margin call? If you enter a short futures contract, what futures price will...
If the 2 months futures price on gold is $1,306, Interest rate is 10% per annum....
If the 2 months futures price on gold is $1,306, Interest rate is 10% per annum. What should the spot price be? Accurate your answer in 2 decimal places
It is now January. The current annual interest rate is 3%. The June futures price for gold is $1,246.30, while the December futures price is $1,251. Assume the June contract expires in exactly 6 months and the December contract expires in exactly 12 months. a. Calculate the appropriate price for December futures using the parity relationship? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Price for December futures L b. Is there an arbitrage opportunity here?...
6. value 10.00 points It is now January. The current interest rate is 6.0%. The June futures price for gold is $1648.70, while the December futures price is $1.654. Assume the June contract expires in exactly 6 months and the December contract expires in exactly 12 months a. Calculate the appropriate price for December futures using the parity relationship? (Do not round intermediate calculations. Round your answer to 2 decimal place. Price for December futures b. Is there an arbitrage...
Question 4 (Final 2011: 10 points)
(a) (3 points) The
spot price for gold is $650. The risk-free interest rate is 5%.
What is the futures price for gold for a six-month contract?
(b) (5 points) The
six-month futures price in the market is $682.50. Is there an
arbitrage opportunity here? Why? If so how would you exploit it?
Explain.
(c) (2
points) Consider the formula on the formula sheet:
What does ‘c’ represent? What is ‘c’
likely to be for gold? What...
PROBLEM 1. Spot price of gold is $1,407-40/oz. The total interest rate on three-month loans and deposits is 0.75% (i.e. $100 borrowed today would require a payment of $100.75 in three months). a. Assuming no storage cost and no transaction cost, determine the no-arbitrage price for a gold futures contract maturing three months from now. b. Suppose that the three-month gold futures contract is actually traded at $1,420.20/oz. Determine if an arbitrage opportunity is present. If so, describe a trading...
p
Chapter 10: Futures Contract and Swaps Exercise: 5, 6, 12, 15, and 20 5.Consider the futures contract written on the S&P 500 index and maturing in 6 months. The interest rate is 3% per 6-month period, and the future value of dividends expected to be paid over the next 6 months is $15. The current index level is 1,425. Assume that you can short sell the S&P index. a. Suppose the expected rate of return on the market is...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New York Commodity Exchange (CMX). The contract size is 100 ounces. The initial margin is S3,000, and the maintenance margin is $1,500. 1.a. Suppose that you enter into a long futures contract to buy December for $500 per ounce on the CMX What change in the futures price will lead to a margin call? If you enter a short futures contract, what futures price will...
Most questions answered within 3 hours.
-
Which statement is not correct?
Mutations change the sequence of nucleotides in DNA.
Mutations can be...
asked 1 hour ago -
An organization is not required to accommodate an employee's
disability when the accommodation would cause "undue...
asked 1 hour ago -
Mojo Mining has a bond outstanding that sells for $2,165 and
matures in 17 years. The...
asked 1 hour ago -
Olympic weightlifter Zoe Smith holds a 58 kg barbell over her
head, 2.1 meters above the...
asked 1 hour ago -
For sample average = 28 and a μ = 17 and a s = 4 and...
asked 2 hours ago -
A
short forward contract that was negotiated some time ago will
expire in three months and...
asked 2 hours ago -
If R = R1L2/L3, what is the measurement error dR based on the
rules of error...
asked 2 hours ago -
At equilibrium, the concentrations of N2(g),
O2 (g) and NO (g) in a sealed reaction vessel...
asked 2 hours ago -
Find P(X-bar > 15.5)
n=81, Mean=15, SD=1
asked 2 hours ago -
3. What percentage of search engine users don’t go to the next
page of search results?...
asked 2 hours ago -
Since Tanya Martin retired, she has used income from her
investment in the Alger Mid Cap...
asked 2 hours ago -
Determine the point estimate of the population proportion, the
margin of error for the following confidence...
asked 2 hours ago