You are a distributor of gold and need to make deliveries of 10,000 kilogram (kg) one month from now. You currently have no gold in inventory. The current spot price of wheat is $8 per kg and the futures price for delivery in one month is $8.2. You would like to hedge the uncertainty about the spot price one month from now.

i) If your storage cost is $0.15 per kg (paid at the end of month), what would you do? (assume the monthly compound interest rate is r, This is must used in solving process, thanks! )

ii) Suppose that in the short run, your storage cost increases to $0.25 per kg. What would you do? (assume the monthly compound interest rate is r, This is must used in solving process, thanks! )