Practice Questions: Chapter 13

You should be comfortable with all the problems in the slides for this chapter before you try these
arbitrage problems:

Problem 1: The current spot price (S0) of an asset is $228 and the interest rate (r) = 6.75% per annum
and the cost of carry is 1.5% per year AND a six month forward price, F (0, 6) = $235.50

Given the above information, is here an arbitrage opportunity? If so, what is the arbitrage amount?
What would you do to lock in this arbitrage profit now and how would you achieve this arbitrage?

Problem 2: The current spot price (S0) of an asset is $228 and the interest rate (r) = 6.75% per annum
and the cost of carry is 1.5% per year AND a six month forward price, F (0, 6) = $240.50
Given the above information, is here an arbitrage opportunity? If so, what is the arbitrage amount?
What would you do to lock in this arbitrage profit now and how would you achieve this arbitrage?

Problem 3. Gold quotes on Nov 1st 2019, was as follows:

 Spot price $1,471.5/oz and February futures $1,481.03/oz
 Risk-free rate = 2.59%
Given the above information, is here an arbitrage opportunity? If so, what is the arbitrage amount?
What would you do to lock in this arbitrage profit now and how would you achieve this arbitrage?

Problem 4. Gold quotes on Nov 21st 2019, was as follows:

 Spot price $1,471.50/oz and June futures $1,488.73/oz
 Risk-free rate = 2.59%
Given the above information, is here an arbitrage opportunity? If so, what is the arbitrage amount?
What would you do to lock in this arbitrage profit now and how would you achieve this arbitrage?

Problem 5. Gold quotes on Nov 21st 2019, was as follows:

 Spot price $1,471.50/oz and June futures $1,499.50/oz
 Risk-free rate = 2.59%
Given the above information, is here an arbitrage opportunity? If so, what is the arbitrage amount?
What would you do to lock in this arbitrage profit now and how would you achieve this arbitrage?