A mining company is planning a bond issue.Its financial advisors have advised the company to issue gold options along with the bonds.Each option would allow the bond holder to buy 10 ounces of gold at $484 per ounce.The options have a maturity of 1 year and are European.

Below is some data:

Spot gold price435.74

Maturity of Option1 year

Interest Rate6.0%, continuously compounded

Futures price for Gold442.00

Maturity of Futures Contract year

Volatility of Gold22% per year

a)[5 points] Using the futures information, extract the convenience yield for gold.

b)[ 5 points]Write down the formula that you would use to price the call option and make sure you identify the values for all inputs.Then compute the price of the option.