Answer Happy

1. Suppose today is June 1. The spot price of gold is $300/ounce and the annual risk-free rate is 6%. There are no carrying costs associated with holding gold but gold can be leased at a rate of 2% per year. a. What is the price of a gold future with delivery in 6 months? b. Suppose the owner of some gold would like to borrow $30,000 today and in 6 months repay the loan with gold instead of dollars. (This is called a gold-linked note.) i. Suppose the contract calls for the owner of the gold to deliver 100 ounces of gold in six months. What additional cash payment needs to be made at delivery in order for both the owner of the gold and the lender to be willing to enter into the contract? ii. If the gold owner only wanted to delivery 100 ounces of gold at maturity and not make or receive any cash payments at the maturity date of the note, how much could he borrow today? iii. If the owner of the gold wanted to borrow $30,000 today and not make any cash payments at delivery, how many ounce of gold would she have to agree to delivery in six months?