(Solution Download) A trader owns gold as part of a long-term investment portfolio. The trader can buy gold for $450 per...


A trader owns gold as part of a long-term investment portfolio. The trader can buy goldfor $450 per ounce and sell it for $449 per ounce. The trader can borrow funds at 6% peryear and invest funds at 5.5% per year (both interest rates are expressed with annualcompounding). For what range of 1-year forward prices of gold does the trader have noarbitrage opportunities? Assume there is no bid-offer spread for forward prices.

 







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