Question 1 For each of the followings, calculate the fair delivery price for the forward contract. a) A forward contract to buy 1,000 ounces of gold in two year's time. The spot gold price is $1226 per ounce, the riskless interest rate is 6% p.a. and storage/security costs for gold bullion are 4%. b) A forward contract to sell 1,000 ounces of gold in two year's time. All other details the same as (a). c) A forward contract for the delivery of 10,000 tonnes of wheat in five months. The spot price for wheat is $140 per tonne, the riskless rate is 6%, and storage costs are 2%. d) A forward contract on the Small Ordinaries Index for delivery in nine months. The Small Ords is currently 2020, the riskless rate is 6% p.a. and the expected dividend yield on the Small Ords is 4%. e) A forward contract to deliver 1,000 TST shares in nine month's time. TST is currently trading at $10 and is expected to pay a dividend of $0.90 in exactly five month's time. The risk-free rate of interest is 6% p.a. f) A forward contract to deliver an ounce of gold in two years. It costs $50 to store an ounce of gold, with the payment being made in two years time. The gold spot price is currently at $1100 per ounce and the risk-free rate is 5% p.a.
Question 1 For each of the followings, calculate the fair delivery price for the forward contract.
a) A forward contract to buy 1,000 ounces of gold in two year's time. The spot gold price is $1226 per ounce, the riskless interest rate is 6% p.a. and storage/security costs for gold bullion are 4%.
b) A forward contract to sell 1,000 ounces of gold in two year's time. All other details the same as (a).
c) A forward contract for the delivery of 10,000 tonnes of wheat in five months. The spot price for wheat is $140 per tonne, the riskless rate is 6%, and storage costs are 2%.
d) A forward contract on the Small Ordinaries Index for delivery in nine months. The Small Ords is currently 2020, the riskless rate is 6% p.a. and the expected dividend yield on the Small Ords is 4%.
e) A forward contract to deliver 1,000 TST shares in nine month's time. TST is currently trading at $10 and is expected to pay a dividend of $0.90 in exactly five month's time. The risk-free rate of interest is 6% p.a.
f) A forward contract to deliver an ounce of gold in two years. It costs $50 to store an ounce of gold, with the payment being made in two years time. The gold spot price is currently at $1100 per ounce and the risk-free rate is 5% p.a.
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