Prices must fall so that there is no arbitrage opportunity

Assignment Help Financial Management

Reference no: EM132001400

A trader owns silver as part of a long-term investment portfolio. The trader can buy silver today for $34 per ounce and sell silver today for $33 per ounce. The trader has indicated that there is no arbitrage opportunity if the lending rate is 8% p.a. (or less) and the borrowing rate is 9% p.a. (or more) with continuous compounding frequency. Assume that there is no bid-offer spread for forward prices, and that there is no storage cost and no convenience yield.

Required: Calculate the range within which the one-year silver forward prices must fall so that there is no arbitrage opportunity. Assume the trader can short sell silver if required.

Reference no: EM132001400

Questions Cloud

Nominal annual interest compounded monthly : Assume that your initial deposit occurs at the end of your first month. Use 9% nominal annual interest compounded monthly.

Insurance deductibles and co-payments : What is your sense of moral hazard and the idea that sharing the cost of care (insurance deductibles and co-payments) off-sets its impact?

Analyze and describe specifically potential tort risks : Analyze and describe specifically potential tort risks and liabilities that PI could face under negligence for each of the following categories

Birb check in at southwest airlines : What is the outcome of the game theory involving early birb check in at southwest airlines.

Prices must fall so that there is no arbitrage opportunity : Calculate the range within which the one-year silver forward prices must fall so that there is no arbitrage opportunity.

What is the impact that technology has had on our society : What is the impact that technology has had on our society? What would our world be like without it?

Recommend ways to use social media in stakeholder management : Recommend ways to use social media in stakeholder management. This can include social media features in software such as chatter in salesforce.

Price elasticity of demand for cds : Using the averages of the two prices and? quantities, the price elasticity of demand for CDs is?

Assess the role of technology in project management : Summarize tools and techniques commonly used in project procurement. Assess the role of technology in project management.

User Account

All Pages