A trader owns silver as part of a long-term investment, Ask an Expert

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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.

1. 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.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92840119

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