1. The fair price of a 2-month forward contract written on gold, excluding storage cost, is $1200.All else being equal, the fair price of the 2-month forward contract written on the sameunderlying asset (i.e., gold), including storage cost, is likely to bea) Less than $1200b) Equal to $1200c) Greater than $1200d) None of them above

1. The fair price of a 2-month forward contract written on gold, excluding storage cost, is $1200.All else being equal, the fair price of the 2-month forward contract written on the sameunderlying asset (i.e., gold), including storage cost, is likely to bea) Less than $1200b) Equal to $1200c) Greater than $1200d) None of them above2. Your stock portfolio has a beta of 1.30 and is currently worth $20m. The S&P/ASX200 index iscurrently priced at 3540. The December-2009 maturity SPI200 futures contract is quoted at3560. How many SPI200 futures contracts are required to fully hedge your stock portfolio?Round your answer to the nearest whole number.a) 292 contractsb) 225 contractsc) 7344 contractsd) 294 contractse) 7303 contracts3. A stock is currently priced at $40. The risk-free rate of interest is 8% p.a. compoundedcontinuously and an 18-month maturity forward contract is currently traded in the market at$43. You suspect an arbitrage opportunity exists. Which one of the following transactions doyou need to undertake at time t = 0 to arbitrage based on the given information?a) Long the forward, borrow money and buy the shareb) Short the forward, short-sell the share and invest at risk-free ratec) Long the forward, short-sell the share and invest at risk-free rated) Short the forward, borrow money and buy the share4. When a European put is priced higher than its upper bound, you can arbitrage by devising atrading strategy that consists ofa) Writing the European callb) Writing the corresponding European call and investing the proceeds at a risk-freeinterest ratec) Writing the European put and investing the proceeds at a risk-free interest rated) Holding the European put and borrowing at a risk-free interest rate

Consider a long position in a two-years forward contract. The underlying asset is gold which incurs a net storage and security cost of 2% p.a., continuously compounded. The total value of the underlying gold today is $100 million. The risk-free rate of interest is 6.09% p.a. with semi-annual compounding for all maturities. Answer the following questions: (1) What are the forward price and the initial value of this forward contract? (2) One year later, the value of the gold is $120 million and the risk-free rate of interest remains the same. The net storage and security cost also remains the same. What are the forward price and the value of the forward contract?

The current spot price of gold is $1200 per ounce. The riskless interest rate is 10% per annum. For simplicity, assume there are no storage/security costs of gold. a) What is the arbitrage-free forward price for the delivery of gold in 8 month’s time? b) If you see an 8-month forward price of gold quoted at $1240 per ounce, explain how you would capture an arbitrage profit. c) If you see an 8-month forward price for gold quoted at $1290 per ounce, explain how you would capture an arbitrage profit.

Consider a forward contract written on 50 tonnes of zinc, a metal that is currently trading at $1,000 per tonne in the cash or spot market. Contract settlement is by making or taking delivery of 50 tonnes of zinc on contract settlement date. Zinc storage costs are $12 per tonne per month, payable at the end of each month, and the risk-free rate is 3% per annum on a continuously compounded basis. Question: Calculate the theoretical price of a zinc forward contract with three months to settlement.

Your storage firm has been offered ​$96 comma 300 in one year to store some goods for one year. Assume your costs are $ 96 comma 300​, payable​ immediately, and the cost of capital is 8.8 %. Should you take the​ contract?