Pricing of forward contracts Costs-of-carry model Exercise 1 - Assumption: An investor needs a bushel of a commodity (e.g., corn) in exactly 3 months S4.250 Spot price per bushel Costs of carry: Financing rate per month (ref. spot price) Storage costs per month Insurance costs per month Spoilage rate per month (ref. spot price) 0.60% $0.030 $0.015 0.50% Total costs of carry for one month Total costs of carry for three months Break-even forward price (spot price total costs of carry) Convenience yield (3 months) Break-even forward price (spot pricecosts of carry convenience yield) 0.30