Question
Hi There, can you please help to see if I am on the right track for my calculation please? Calculate the net effect that a
Hi There, can you please help to see if I am on the right track for my calculation please? Calculate the net effect that a change in the annually compounded risk-free rate from 2.72 percent to 2.89 percent would make on the price of a commodity futures contract whose spot price as of June 30, 2018 was $12.91, assuming that there is a $0.76 storage cost and the futures contract expires on March 30, 2019. f0(T) = S0(1 + r)T + s f0(T) = price of commodity futures contract S0 = spot price r = risk free rate T = duration of the contract until expiration S = storage costs f0(T) = S0(1 + r)T + s = $12.91 x (1 + 0.0272)9/12 + $0.76 = $12.91 x (1.0272)9/12 + $0.76 = $13.93 (when the risk free rate is 2.72%) f0(T) = S0(1 + r)T + s = $12.91 x (1 + 0.0289)9/12 + $0.76 = $12.91 x (1.0289)9/12 + $0.76 = $13.95 (when the risk free rate is 2.89%) = $13.93 - $13.95 = -$0.02 the net effect on the price because of the change in interest rates. Can there be a negitive change?
thank you
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