Question
Download Solution PDFWhat is the one-month forward price of crude oil trading at $ 70 a barrel when annual interest rate is 6 percent and monthly storage cost amounts to $ 0.60?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is $ 70.95
Key Points
- Forward Price: The cost of transferring an underlying asset/ financial derivative to the buyer of a forward contract at a preset date is known as the forward price.
Important Points
- Price of crude oil trading at $ 70
- Annual Interest rate = 6%
- Monthly Storage cost = $ 0.60
- Calculation of one month forward price:
= Spot price + Monthly Interest rate + Monthly Storage cost
= $70 + $ .35 + $.60
= $ 70.95
Working Note: Monthly Interest Rate
= $ 70 * 6/100 * 1/ 12
= $ 0.35
Hence, the correct answer is $ 70.95
Last updated on Jun 27, 2025
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