Calculate the fair forward price for gold per ounce

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If John is planning to use a forward contract to purchase 100 ounces of bronze in 2 months time. The current price of gold is 1 970 per unit. Assume that John can borrow and lend at 2.5% p.a. compounded half yearly.

Problem 1: Use the arbitrage-free pricing principle to calculate the fair forward price for gold per ounce.

Problem 2: The forward price for purchase or sale of gold in two months time is 2 030 per unit. What steps does John needs to undertake in order to make an arbitrage profit from a forward contract on 100 units of gold in 3 months time. Outline all that needs to happen on all relevant dates, as well as today.

Problem 3: The forward price for purchase or sale of gold in two months time is 1 900 per unit. List and explain all the steps that Tom needs to undertake in order to make an arbitrage profit from a forward contract on 100 ounces of gold in two months time. Outline all that needs to happen on all relevant dates, as well as today

Reference no: EM132762272

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