Question
Gold sells at $1,209.10 per ounce. It has a convenience yield denoted by y and a storage cost u = 4% (per annum continuously compounded).
Gold sells at $1,209.10 per ounce. It has a convenience yield denoted by y and a
storage cost u = 4% (per annum continuously compounded). The risk-free interest rate
is 3% per annum continuously compounded. The 6-month futures price is $1,243.7441.
An Alternative Investments fund takes 50 long positions in the 1- year futures contract
on gold today. Each contract is on 100 ounces.
(a) What is the convenience yield? (2 marks)
(b) Suppose that the hedge fund closes out its positions 8 months from now and makes
a total gain of $75,000. What is the spot price of gold 8 months from now if there is no
arbitrage?
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Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective
Authors: James M Wahlen, Stephen P Baginskl, Mark T Bradshaw
7th Edition
9780324789423, 324789416, 978-0324789416
