How you would take advantage of the arbitrage opportunities

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Reference no: EM131964487

Question: The current price of silver is $9 per ounce. Each contract corresponds to 5,000 Troy oz. The storage costs are $0.20 per ounce per year payable quarterly at the end of each quarter, interest rates of all maturities are equal to 10% per annum with continuous compounding. How much should the futures price of silver for delivery in nine months be? If the futures price is $9.95 per ounce, are there any arbitrage opportunities? Can you describe how you would take advantage of these arbitrage opportunities? How much profit can you make?

Reference no: EM131964487

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