Forward price exceeded its upper bound value

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Reference no: EM131949330

If the spot price of gold is $980 per troy ounce, the risk-free rate is 4%, storage and insurance costs are zero, ( a) what should the forward price of gold be for delivery in 1 year? (b) Use an arbitrage argument to prove the answer. Include a numerical example showing how you could make risk-free arbitrage profits if the forward price exceeded its upper bound value.

Reference no: EM131949330

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