(a) (2 points) Using the 1.5M and 3.5M zeros (i.e. not the 2M 1.5M forward): What are the fair contract prices in this case?

(b) (2 points) How would you make money in this case?

(c) (3 points) Decompose your profit into futures curve P&L and yield curve P&L.

1. Consider the following gold contracts, 2% (i.e. 0.02) interest rates, and a carry cost of 2%. S/oz Term Cash (Jan 1) $880 Feb Futures $884. Apr Futures $889 (a) (2 points) What are fair prices for the Feb and Apr contracts (You may assume they expire at mid-month.) (b) (1 point) Given this, which is the most mispriced? (c) (3 points) If you had no money (except for margin how would you make money in this case