Task
In this assignment, you will solve problems on pricing forwards and futures.
Instructions
- Use your textbook to answer the following questions from Chapter 4:
- Exercise 9 and 13.
- Please, upload xls, xlsx file.
- Please, use the full computing power of Excel.
Questions
9. The spot price of silver is currently $7.125/oz, while the two- and five-month forward
prices are $7.160/oz and $7.220/oz, respectively.
(a) If silver has no convenience yield, what are the implied repo rates?
(b) Suppose silver has an active lease market with lease rate = 0.5% for all maturities
expressed in annualized continously compounded terms. Using the formula developed
in Question 3, identify the implied repo rate for maturities of two months and
five months.
13. There is an active lease market for gold in which arbitrageurs can short or lend
out gold at a lease rate of = 1%. Assume gold has no other costs/benefits of carry.
Consider a three-month forward contract on gold.
(a) If the spot price of gold is $360/oz and the three-month interest rate is 4%, what is
the arbitrage-free forward price of gold?
(b) Suppose the actual forward price is given to be $366/oz. Is there an arbitrage opportunity?
If so, how can it be exploited?