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Does this give rise to any arbitrage opportunities

Assignment Help Financial Management
Reference no: EM132075031

Module : Critical Thinking

Choose one of the following two assignments to complete this week. Do not do both assignments. Identify your assignment choice in the title of your submission.

Option #1: Pricing Forwards and Futures

Respond to the following questions.

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.

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?

Suppose the actual forward price is given to be $366/oz. Is there an arbitrage opportunity? If so, how can it be exploited?

A three-month forward contract on a non-dividend-paying asset is trading at $95, while the spot price is $82.

Calculate the implied repo rate.

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.

Option #2: Interest Rate Derivatives

Respond to the following questions.On a $1,000,000 principal, 91-day investment, what is the interest payable if we use an Actual/365 basis? What is the interest if the basis is Actual/360?

If the six-month interest rate is 6% and the one-year interest rate is 8%, what is the rate for the FRA over the period from six months to one year?

Assume that the number of days up to six months is 182 and from six months to one year is 183.

Complete your response in 2-4 pages using Microsoft Word or Excel. For calculations, you must show work to receive

At least three 3 western references only please

No Investopedia or other pedia type sources please

APA Format

Times new roman 12 font

Reference no: EM132075031

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