Calculate the forward price of gold for delivery in months

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Suppose that the current price of gold is $1,765 per oz and that gold may be stored costlessly. Suppose also that the term strugture is flat with a continuously compounded rate of interst of %6 for all maturities.

a) Calculate the forward price of gold for delivery in three months

b) Now suppsoe it costs $1 per oz per month to store gold (payable montly in advance). what is the new forward price?

c) Assume storage costs are as in part (b). if the forward price is given to be $1,805 per oz, explain whether ther is an arbitrage oppertunity and how to exploit it?

Reference no: EM132005466

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