Question
For firm needs 1,000,000 barrels of WTI crude oil 6 months from today. You enter into a forward contract to receive WTI crude oil 6
For firm needs 1,000,000 barrels of WTI crude oil 6 months from today. You enter into a forward contract to receive WTI crude oil 6 months from today. The current price of a barrel of WTI is $45, the cost of storage for 6-months is $3.5, and the risk-free rate of return is 2% for 6 months. The cost of storage needs to be paid today. What will the maximum contracted price today be for the payment to be made 6-months from now for 1,000,000 barrel delivery? You will pay the counterparty the contracted price 6-months from now. Assume zero transaction costs.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started