Exercices On Spot Rate

Gold futures The current price of gold is 412 per ounce The storage cost is 2 per ounce per year, payable quarterly in advance. Assuming a constant interest rate of 9 compounded quarterly, what is the theoretical forward price of gold for delivery in 9 months 2. Proportional carrying charges o Suppose that a forward contract on an asset is written at time zero and there are M periods until delivery Suppose that the carrying charge in period k is qS k , where S k is the spot price of the asset...

Evaluating Real Investment Opportunities

Options theory can be used to evaluate investment opportunities that are not pure financial instruments. We shall illustrate this by again considering our gold mine lease problems Now, however, the pr ice of gold is assumed to fluctuate randomly, and this fluctuation must be accounted for in our evaluation of the lease prospect. Example 12.7 Simplico gold mine Recall the Simpfico gold mine from Chapter 2 Gold can be extracted from this mine at a rate of up to 10,000 ounces per year at a cost of...