Execute an arbitrage and determine the size of the profit

Assignment Help Financial Management

Reference no: EM131020957

Today, the spot price of gold is $700/oz. The market price of a 7-month gold futures contract today is $750. The riskfree rate is 9% p.a. The storage cost of gold is 1% p.a. of the gold price and is payable over the life of storage. Show step by step how to execute an arbitrage and determine the size of the profit.

Reference no: EM131020957

Questions Cloud

Calculate the constant yield price : A newly issued 10-year maturity, 6% coupon bond making annual coupon payments is sold to the public at a price of $820. The bond will not be sold at the end of the year. The bond is treated as an original-issue discount bond. Calculate the constant y..

What is its sustainable growth rate : Rocky Sales, Inc., has current sales of $1,268,864 and net income of $203,018. It also has a debt ratio of 47 percent and a dividend payout ratio of 69 percent. The company’s total assets are $587,439. What is its sustainable growth rate? (Round answ..

Company will also pay out a liquidating dividend : JJ Industries will pay a regular dividend of $1.70 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 12 percent, and the current share price is $62, what..

Evaluating mutually exclusive capital budgeting projects : When evaluating mutually exclusive capital budgeting projects, the NPV and IRR could conflict with each other in the ranking of projects. List and explain three reasons why a conflict could exist. Which technique is best to use in a conflict? Explain..

Execute an arbitrage and determine the size of the profit : Today, the spot price of gold is $700/oz. The market price of a 7-month gold futures contract today is $750. The riskfree rate is 9% p.a. The storage cost of gold is 1% p.a. of the gold price and is payable over the life of storage. Show step by step..

Different component cost than the investors required return : The internal cost of common equity is the same as the common stockholder’s required return. Explain why this relationship is true while the component costs of debt, preferred stock, and external common equity have a different component cost than the ..

Debt-to-total assets ratio : Krisle and Kringle's debt-to-total assets ratio is 0.445 (i.e., debt ratio = 44.5%). What is the company’s debt- to-equity ratio? (Enter answer as a ratio rounded to 2 decimal places – that is, do not convert to a percent; for example, enter 80/35 = ..

Average accounts receivable balance : Knight Roundtable Co. has annual credit sales of $576,000 and an average collection period of 35 days in 2008. What is the company’s average accounts receivable balance?

Dreamworld corportation began construction of new warehouse : The average accumulated expenditures for 2017 by the end of the construction period was:$1,100,750.$2,203,000.$1,416,200.$1,754,200.

User Account

All Pages