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The current price of gold is $1,600 per troy ounce. There are no storage costs. The risk free rate of interest is 5% continuously compounded.
Please help me with the answers for all the questions.
(a) What is the forward price of gold with delivery in 3 months?
(b) Calculate the cost of a collar, with 3 months to delivery, where the strike of all options used is 1620.126. The annual standard deviation of the gold price is 20%.
(c) Compare the two hedging strategies based on your answer in (a) and (b).
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