What is two-month gold futures price that satisfies parity

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Problem

Gold futures prices are quoted in dollars per ounce, contract size is 100 ounces. The E-mini S&P 500 futures price is quoted in the S&P 500 Index value and contract size is a multiple of $50 times the price quote. Crude oil futures prices are quoted in dollars per barrel, contract size is 1,000 barrels and the initial margin requirement is $9,000 per contract.

The current spot price of gold is 1,947.50 and the current S&P 500 Index value is 3,874.50. The annual risk-free rate is 4.5% and the annual dividend yield on the S&P 500 is 3.6%. 4 pts

1. What is the 2-month gold futures price that satisfies spot-futures parity?

2. What is the 6-month E-mini S&P 500 futures price that satisfies spot-futures parity?

3. Suppose the actual 9-month gold futures price is 2,003.15. Would you implement a cash and carry spot-futures arbitrage strategy or a reverse cash and carry spot-futures arbitrage strategy? What would you expect your riskless arbitrage profit per ounce to be?

Reference no: EM133616791

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