MATH 534 Midterm: MATH 537 UMass Amherst midtermF13soln
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Instructions: show all your work for full credit, and indicate your answers clearly. There are six questions, each worth ten points: the risk free rate with quarterly compounding is 6% per annum. The spot price of gold is per ounce. The storage cost of gold is per ounce per 6 months, payable in advance. A futures contract size of gold is 16 ounces. Compute the futures price of gold, to be delivered in 6 months. You know you will need 1000 gallons of heating oil for your home on november 27. A futures contract for oil exists (contract size is one gallon), but only for delivery on december 15. The standard deviation in the monthly change in spot price of oil is sh. 25 per gallon. The standard deviation in the monthly change in futures price of oil is sh. 20 per gallon. The correlation between these monthly changes is 0. 8.
