FIN4520-Chapter5

FIN4520-Chapter5 - Determination of Forward and Futures...

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Determination of Forward and Futures Prices Chapter 5 1
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Consumption vs Investment Assets Investment assets are assets held by significant numbers of people purely for investment purposes (Examples: gold, silver). Consumption assets are assets held primarily for consumption (Examples: copper, oil). 2
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Short Selling Short selling involves selling securities you do not own. Your broker borrows the securities from another client and sells them in the market in the usual way. At some stage you must buy the securities back so they can be replaced in the account of the client. You must pay dividends and other benefits the owner of the securities receives. 3
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Notation S 0 = spot price today F 0 = futures or forward price today T = time until delivery date (in years) r = risk-free interest rate for maturity T K = delivery price f = value of the contract today (if long) 4
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1. Gold: An Arbitrage Opportunity? Suppose that:
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This note was uploaded on 01/19/2012 for the course FIN 4520 taught by Professor Lucyackert during the Spring '12 term at Kennesaw.

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FIN4520-Chapter5 - Determination of Forward and Futures...

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