CFA Practice Question

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CFA Practice Question

Assume the risk-free rate is 5%. The current price of gold is $300 per ounce and the forward price of gold is $315 in one year's time. If you want to replicate a long forward position, you would ______.

A. borrow money to buy gold at $300 now
B. short sell gold now at $300, deposit the money in the bank at 5% and buy it back in one year at $315
C. short sell gold and deposit the money in the bank at 5%
Correct Answer: A

In one year you would own one ounce of gold, and owes the bank $315.

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