A trader owns gold as part of long term investment portfolio

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A trader owns gold as part of a long-term investment portfolio. The trader can buy gold for $1,250 per ounce and sell it for $1,249 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 forward prices of gold does the trader have no arbitrage opportunities? Assume there is no bid-offer spread for forward prices.

Reference no: EM131235892

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