Question
Suppose It is the starting date of the current quarter now. There is a 6-month futures contract on copper. The coppers spot price now is
Suppose It is the starting date of the current quarter now. There is a 6-month futures contract on copper. The coppers spot price now is $2.90/pound. The storage cost for copper is 0.36/per pound annually. The storage cost is paid at end of each quarter. The copper does not provide income. However, the copper may provide some benefits to the owner if the copper is held as a consumption asset. The risk-free interest rate is 3% per annum with continuously compounding.
(a) What is the coppers futures price if we assume the copper is an investment asset?
(b) What is the upper bound of the coppers futures price if we assume the copper is a consumption asset.
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