Is the one-year gold futures under priced or overpriced

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Reference no: EM131932574

A one-year gold futures contract is selling for $1,300. Spot gold prices are $1,250 and the one-year risk-free rate is 1.64%. (20)

(1) What should a futures contract with a one-year maturity be selling for, (i.e., theoretical futures price)?

(2) Is the one-year gold futures under priced or overpriced? What strategy should they use?

(3) What will be the profits on the strategy? Explain using the table including strategy, today’s cash flows and cash flows in one year.

Reference no: EM131932574

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