Gold has a current spot price of $1900 per ounce. The continuous compounding risk-free interest rate is 7% annually for all maturities. The storage costs are $4 per ounce per year. What is the equilibrium price of gold futures to be delivered in 1 year?

Gold has a current spot price of $1900 per ounce. The continuous compounding risk-free interest rate is 7% annually for all maturities. The storage costs are $4 per ounce per year. What is the equilibrium price of gold futures to be delivered in 1 year?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 4P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

A 136.

Gold has a current spot price of $1900 per ounce. The continuous compounding risk-free interest
rate is 7% annually for all maturities. The storage costs are $4 per ounce per year. What is the
equilibrium price of gold futures to be delivered in 1 year?

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