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1)An investor enters into a forward contract to buy 5,000 barrels of oil at $80 a barrel in three months. Two months later, suppose that
1)An investor enters into a forward contract to buy 5,000 barrels of oil at $80 a barrel in three months. Two months later, suppose that the spot price for oil is $83 a barrel, and the one-month interest rate is 1 % continuously compounded. Assuming that there are no storage costs, what is the value of the contract the investor holds after two months?
Note: I would appreciate if you guys could show the equation so I can understand it. Thank you.
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