10. Three years from now you will sell 10 ounces of gold and immediately deposit the proceeds for two years. The spot price of gold is $500 per ounce and it costs 8% to store gold. You decide to hedge all risk. How much will you have at t=5?

10. Three years from now you will sell 10 ounces of gold and immediately deposit the proceeds for two years. The spot price of gold is $500 per ounce and it costs 8% to store gold. You decide to hedge all risk. How much will you have at t=5?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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10. Three years from now you will sell 10 ounces of gold and immediately deposit the proceeds
for two years. The spot price of gold is $500 per ounce and it costs 8% to store gold. You
decide to hedge all risk. How much will you have at t=5?

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