Question: Suppose that the CAPM holds. The expected return on the market portfolio is 6 % and the risk - free rate is 1 % .

Suppose that the CAPM holds. The expected return on the market portfolio is 6% and the risk-free rate is 1%. These returns are in annual terms and continuously compounded.
Consider a company that will sell one unit of gold 2 years from today. Assume that the mean price of gold in 2 years is 128 and the standard deviation is 20. Assume that the market beta of gold is 0.7.
Find the value of the firm if it did no hedging

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