GOLD

1. Spot gold is 1750 per ounce, today February 12. What is the 1-year fair forward price if the financing rate is 2% (ignore storage, insurance and other costs)?

2. Suppose spot gold rises by 10%. What happens to the fair forward (assuming the financing rate does not change)?

3. Back to 1750. What is 6-month fair forward?

4. HARD. Suppose you go short the contract in 1 today. Jump ahead six months to August 12. Gold is still 1750 then. What is your contract worth (assuming the same financing rate)?

II STOCKS

5. Stock ABC is now 50/share. It pays no dividend. What is the 1-year fair forward price if the financing rate is 2%?

6. Suppose ABC falls 10%. What happens to the fair forward (assuming unchanged financing rate)?

7. Stock XYZ is now 60/share. It pays a dividend (annual) of 1/share. What is the 1-year fair forward price if the financing rate is 2%?

8. What is XYZs 3-month far forward?

9. What happens to XYZs 1-yr fair forward if the company raises the dividend to 2/share?

III BONDS

10. A 20-year bond with a 5% (annual) coupon is priced today at a yield-to-maturity of 4.8%. What is its price?

11. What is its current yield? Calculate its 1-yr fair forward price if repurchase agreements are 2%..