For this problem set use Excel, LibreOffice calculator, R or any software of your choice to do your
calculations. If you are feeling brave, you can use a calculator.
Question 1 5 pts
Recall our marking-to-market profit equation:
Suppose you buy 10,000 bushels of corn at 352 cents per bushel on the spot market.
Are you long or short corn?
5 pts
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Question 2
After one day, the spot price changes to 323.49. According to the Profit Equation,
what is the value of St, Ko, Qo? Include the unit of measurement.
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00 wwoorrddss
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5 pts
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Question 4
Using the dataset provided, compute the Mark to market (MTM) of your position
from t = 1 to t = 8 using the data provided on Canvas. What is the MTM for t=1 and
t=8? Include the unit of measurement.
On t = 8 you see that prices have been recovering for some time, and finally, at t = 11,
you decide to sell half of your initial position. What are your profits on that particular
share of your trade? i.e. for the 5,000 bushels sold. Include the unit of measurement
and up to two decimal points.
7/4/2020 Quiz: Homework 2
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Question 6
At t = 12, what is the profit of your trade? (Profit/loss of your closed position + current
MTM). Include up to two decimal points and the unit of measurement.
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At t = 13 you read on the news that a terrible fire has damaged the 20% of this year’s
crops in the U.S. If you are a speculator, would you go long or short the corn futures
contract? Why?
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Choose a File
Question 14 2.5 pts
0,-2
0,2
-2,0
Continuing from Question 13, the intercept and slope of this function is:
7/4/2020 Quiz: Homework 2
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2,0
2,2
Question 15 5 pts
{11.0312, 2.4375} and {10.0830, 1.84575}
{10.2083,1.9167} and {9.1941,1.6235}
{16.4271, 3.9792} and {10.9110, 2.0528}
{5.4167, 0.8333} and {6.2240, 3.3810}
Consider a market in t=1 (Equation(1)) and t=2 (Equation(2)) with the following
inverse supply and demand functions:
If there is no storage, what is the price and quantity equilibria ({pt,qt}) in t=1 and t=2,
respectively?
Question 16 5 pts
11.4677
11.3132
10.3132
If there is storage, and its cost is zero, what is the intertemporal equilibrium price?
7/4/2020 Quiz: Homework 2
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There are no incentives to partake in storage, then prices will not be intertemporally
connected
Question 17 5 pts
11.6667
11.3132
10.3132
There are no incentives to partake in storage, then prices will not be intertemporally
connected
Suppose that the supply and demand for t = 1 and t = 2 look like:
What is the intertemporal equilibrium price?
Question 18 5 pts
0.5493
1.0000
2.1493
3.1493
What is the quantity that is stored from t = 1 to t = 2?
7/4/2020 Quiz: Homework 2
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Question 19 5 pts
2.6119
1.6119
0.463
There are no incentives to partake in storage, then prices will not be intertemporally
connected
If storage costs are 1.5 $/unit, what is the quantity that is stored from t = 1 to t = 2?
Question 20 5 pts
2.1095 and 1.6468
2.3383 and 2.7264
1.7264 and 2.3383
There are no incentives to partake in storage, then prices will not be intertemporally
connected
If storage costs are 1.5 $ /unit, what is the quantity supplied and the quantity
demanded in t = 1, respectively?
Question 21 18 pts
Option A is preferable, Option A is preferable
If you are a financial investor, would you rather have $10,000 today (Option A) or
$15,000 in five year’s time (Option B) if the annual interest rate is 10%? What about if
the interest rate is 8%?
7/4/2020 Quiz: Homework 2
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Option B is preferable, Option B is preferable
Option A is preferable, Option B is preferable
Option B is preferable, Option B is preferable
Question 22 18 pts
Option A is preferable
Option B is preferable
Suppose you are thinking about retiring in 20 years. Your pension fund offers two
options: Option A) Receive $1,000,000 today and no further payments. Option B)
Receive $150,000 at the end of every year after your retirement starts during 10
years. Which option would you choose if interest rates are 5.5% per year?
5 pts
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Question 23
Suppose that today’s spot price of gold is 1,250 dollars per ounce. Further assume
that storage costs are zero, the convenience yield is zero, and the annual interest rate
on a one year deposit is 2.5%.
What is the theoretical price of a futures contract that settles in: six months, one year,
two years, respectively? (Report your answer with two decimal points, use the third
decimal point to round up or down.) Do not add a unit of measurement.
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5 pts
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Question 24
What would the prices for these different maturities be if the convenience yield is
2.5%?
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00 wwoorrddss
5 pts
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Question 25
Suppose the present value of the storing one ounce of gold for over a year is 10$ and
the convenience yield is 1.5%. The one-year forward price is:
00 words
7/4/2020 Quiz: Homework 2
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5 pts
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Question 26
If the spot price of gasoline is trading at 210.00 cents per gallon (cpg), the two-year
the forward price is 270.7683 cpg, the discount rate is 3% per-year (continuous
compounding) and the convenience yield is 0%, then what is the present value of the
cost of storage for there to be no arbitrage opportunities? Note: Use four decimals for
your calculations. If e is not coded in your calculator use e=2.718281. Add the unit of
measurement.