Consider that the weekly price of gold (per ounce) can be modeled with the following stochastic process (price of gold per ounce is $1,800):

where,

and is independent of for

a. If t is today, determine the expected price of gold for the following week and determine the standard deviation of the price of gold for the following week, and interpret your results. b. If t is today, determine the expected price of gold two weeks from now and determine the standard deviation of the price of gold two weeks from now, and interpret your results. c. Find the variance for week t of the price of gold.

Yt = 450 +0.75 Yt-1 + et, et ~N(0,625) et ek t #k. Yt = 450 +0.75 Yt-1 + et, et ~N(0,625) et ek t #k