Derivative Securities

  1. The current price of gold is $500 per ounce.  The forward price of gold for delivery in one year is $530 per ounce.  The current borrowing interest rate is 15% per year, continuously compounded, and lending interest rate is 5% per year, continuously compounded. What exactly should an arbitrageur do, and what are the cash flows? 

5.  A call with a strike price of $50 costs $6,and a put with the same strike price and expiration date costs $4.  Graph the payoff and profits diagrams for astraddle. (buying one call and one put). What range of stock prices would create a loss on the straddle?

Derivative Securities

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