Consider a derivative, Xt , written on gold that gives the right to redeem for one troy ounce the first time, , that the price, pt , of a troy ounce reaches $3000. Assume (i) that the price will reach $3000 eventually and (ii) that there are no storage costs or transaction costs of any kind.

1. Go here: https://www.cmegroup.com/markets/metals/precious/gold.html. What is the price of a troy ounce of gold today?

2. What is the price, X0, of the derivative described above?

3. Show explicitly that if X0 is different from your answer above, there is an arbitrage opportunity.

4. How do your think your answer could change if gold were costly to store? Explain briefly.