A one year gold futures contract is selling for $641. Spot gold prices are $600 and the one year risk free rate is 6%.
-The arbitrage profit implied by these prices is _____________.

Question

Quizplus · Accepted Answer

The arbitrage profit can be calculated by comparing the futures price with the spot price adjusted for the risk-free rate. The theoretical futures price should be $600 * (1 + 0.06) = $636. Since the actual futures price is $641, the arbitrage profit is $641 - $636 = $5.

A One Year Gold Futures Contract Is Selling for $641