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Suppose that the current price of gold is $365 per oz and that gold may be stored costlessly. Suppose also that the term structure is at with a continuously compounded rate of interest of 6% for all maturities. (a) Calculate the forward price of gold for delivery in three months. (b) Now suppose it costs $1 per oz per month to store gold (payable monthly in advance). What is the new forward price

Respuesta :

ogorwyne

Answer:

1. $370.5

2. $373.51

Explanation:

Forward price = spot price x e^rt

Spot price = $365

R = 0.06

T = 3/12 that is 3 months in 12 months

Substituting, we have:

$365 x e^0.015

= $365 x 1.015

= $370.5

This is the forward price for gold in 3 months

Pv = $1 + (1*0.995) + (1*0.99)

= 1+0.995+0.99

= $2.99

The new forward price =

(365 + 2.99)*e^0.06x3/12

= 367.99x1.015

= $373.51

This is the new forward price.

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