The value of a futures contract on gold is considered. The cost of gold storage is 2 euros per ounce, with liquidation at the end of the year. The spot price is 450 euros and the risk-free interest rate is 7% per year (continuous compound). It is known that the variance of the changes in the price of gold is 0.4225 and that of the changes in the prices of the future over gold is 0.6561. The covariance between both variables is 0.4212.

Calculate the price of the future for one year gold. Reply Calculate the optimal coverage ratio. Reply If the investor owns the gold and will sell it in the future, he must make an ANSWER: SHORT OR LONG COVERAGE? The optimum coverage ratio is equal to zero provided that: ANSWER a. the correlation between spot price and future price is equal to 1? b.the covariance between cash and future prices is equal to 0 c.the covariance between cash and future prices is equal to the product of its typical deviations d.it can never be optimal not to cover anything