Suppose the spot price for gold is $1600, the 4-year futures price is $1850, and the 4-year
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Question:
Suppose the spot price for gold is $1600, the 4-year futures price is $1850, and the 4-year (annual effective) risk-free rate is 3%. You would like to replicate the futures contract with a position in 1 ounce of gold and $X in cash.
What is the value of your cash position X?
(if you hold $100 in cash, write 100; if you borrow $100, write -100.)
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