Question: This is a full study question. Is someone able to answer all components (a and b) for me? Gold sells at $1,209.10 per ounce. It

This is a full study question. Is someone able to answer all components (a and b) for me?

Gold sells at $1,209.10 per ounce. It has a convenience yield denoted by y and a storage cost u = 4% (per annum continuously compounded). The risk-free interest rate is 3% per annum continuously compounded. The 6-month futures price is $1,243.7441. An Alternative Investments fund takes 50 long positions in the 1- year futures contract on gold today. Each contract is on 100 ounces.

(a) What is the convenience yield?

(b) Suppose that the hedge fund closes out its positions 8 months from now and makes a total gain of $75,000. What is the spot price of gold 8 months from now if there is no arbitrage?

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