Assume that it is now December 2002.You are given the following information: December 2003 gold futures contract price = 515.60/troy oz.;
spot gold price = 481.40/ troy oz.;
annualized interest rate = 6%;
annualized carrying cost of gold = 2%.
a. The above information presents an arbitrage opportunity. Describe what you would have to do now to set up the arbitrage.
b. What would you have to do in December to unwind the position in part a? What is the arbitrage profit?

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The Answer of Assume that it is now December 2002.You are given the following information: December 2003 gold futures contract price = 515.60/troy oz.;
spot gold price = 481.40/ troy oz.;
annualized interest rate = 6%;
annualized carrying cost of gold = 2%.
a. The above information presents an arbitrage opportunity. Describe what you would have to do now to set up the arbitrage.
b. What would you have to do in December to unwind the position in part a? What is the arbitrage profit?

Assume That It Is Now December 2002