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A trader owns a commodity that provides no income and has no storage costs as part of a long term investment portfolio. The trader can buy the commodity for $1250 per ounce and sell it for $1249 per ounce. The trader can borrow funds at 6% per year and invest funds at 5.5% per year (both interest rates are expressed with annual compounding). For what range of 1-year foward prices does the trader have no arbitrage opportunities? Assume there is no bid-offer spread for foward prices.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92062573

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