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7. Consider a 12-months futures contract on silver. Assume no income and that it costs $X per ounce per year to store silver, with payment
7. Consider a 12-months futures contract on silver. Assume no income and that it costs $X per ounce per year to store silver, with payment being made at the end of the year. The spot price is $26 per ounce and the risk free rate is 4% per annum for all maturities, based on continuous compounding. The futures price of the 12-month futures contract on silver is $29 per ounce. Assume that no arbitrage Futures-Spot parity with storage costs holds. The storage cost per ounce per year ($X) is,
A) $2.88
B) $1.86
C) $1.94
D) $3.00
E) $2.15
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