Question

Cost-of-curent inons on she Perfect sume that markets are perfect in the s ofheine free from tract costs and restrictions on short selline Thest price of gold is 70 per ounce. Current interest rates are 100% compounded monthly. According to Lost-Ot-Carry Model, approximately what should the price of a gold tutus contract be if expiration is six months away Assume that the cost of storing the gold is so. (There 100 ounces of gold in a gold futures contract) a. $375.72 b. $381.46 c. $388.89 d. $394.63 e. $399.95 19. Consider the information in question 18. Say however, that the cost of storing the gold is $0.15 per month per ounce all of which is paid at the maturity of the futures contract. What upper bound on the futures contract price is consistent with the Cost-of-Carry Model? That is, above what futures price can arbitrage first take place. a. same as the correct answer to question 18 b. the correct answer to question 18 - $0.15 c. the correct answer to question 18 + $0.15 d. the correct answer to question 18 - $0.90 e. the correct answer to question 18 + $0.90 20. The S&P500 stock index currently is 1000.00. The risk-free interest rate is 6% per year and the dividend yield on the index is 2% per year. Approximately what should be the equilibrium futures price on a contract which matures in six months? (You can use either continuous or discrete compounding.) a. 1005 b. 1010 c. 1015 d. 1020 e. 1030

Answer 1

ANSWER 18 6 month ** 12 month Prise of Futures - Spot Price (it sapa • $ 370*(1+ 0.10) - 370 % (1.008333 = $ 398.89 Option (c) ANSWER 19 Future Price = Answer to 18 + (monthly cost x 6 months) = Answer to 18 + $0.15 xr) - Answes to 18 + $0.90 option (e) Price Rate yield ANSWER 20 Equilibrium Futul = Spot * {i + (6 month Risk-free – 6 month) - $1000 x {1+ (** - *) = $ 1000 x [1 + (37 - 11] = $ 1000 x [1 + 0.02) = $ 1020 option (d)