# Question

Suppose the gold spot price is $300/oz, the 1-year forward price is 310.686, and the continuously compounded risk-free rate is 5%.

a. What is the lease rate?

b. What is the return on a cash-and-carry in which gold is not loaned?

c. What is the return on a cash-and-carry in which gold is loaned, earning the lease rate? For the next three problems, assume that the continuously compounded interest rate is 6% and the storage cost of widgets is $0.03 quarterly (payable at the end of the quarter). Here is the forward price curve for widgets:

a. What is the lease rate?

b. What is the return on a cash-and-carry in which gold is not loaned?

c. What is the return on a cash-and-carry in which gold is loaned, earning the lease rate? For the next three problems, assume that the continuously compounded interest rate is 6% and the storage cost of widgets is $0.03 quarterly (payable at the end of the quarter). Here is the forward price curve for widgets:

## Answer to relevant Questions

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