The current price of gold is $1000 an ounce. The storage cost is $10 per year, payable semi-annually in advance (i. $5 at the beginning of every 6…
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The current price of gold is $1000 an ounce. The storage cost is $10 per year, payable semi-annually in advance (i.e. $5 at the beginning of every 6 months). Suppose the annual risk-free rate rf = 1%, compounding semi-annually. (a) What is the forward price of gold for delivery in one year? (b) After six months, the forward price for delivery in 6 months into the future has become $1100. What is the value of the long position in the original forward contract?
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