CFA Level I · CFA Level I Exam · Natural Resources
Gold spot is USD 2,000 per ounce. The annual risk-free rate is 5% (annual compounding), and storage and insurance costs are zero. Using the no-arbitrage cost-of-carry model, the fair price of a six-month gold forward is closest to:
The fair six-month forward price is about USD 2,049. With no storage costs, the forward equals spot compounded at the risk-free rate for half a year: 2,000 x 1.05^0.5. Applying the full annual 5% would overstate it at USD 2,100.
- AUSD 2,000
- BUSD 2,049Correct
- CUSD 2,100
Explanation
Forward = 2,000 x (1.05)^0.5 = 2,000 x 1.024695 = 2,049.39. USD 2,050 is therefore closest to USD 2,049. Using 2.5% simple half-year interest gives 2,050, a similar value, while USD 2,100 applies the full-year rate to a six-month period.
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