The total cost of insurance and storage for gold

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Reference no: EM131580837

Suppose that the spot price of gold is $850. The total cost of insurance and storage for gold is $16 per year, payable in advance. The rate of interest for borrowing or lending is 3%. If the forward price is $880, and you are interested in arbitrage, you would: (Hint: Check answer with an arbitrage table)

a. Sell the spot commodity, lend money, and buy a forward contract

b. Borrow money, buy the spot commodity, and buy a forward contract

c. Borrow money, buy the spot commodity, and sell a forward contract

d. Sell a forward contract, lend money, and buy the spot commodity

Reference no: EM131580837

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