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Suppose that a tonne of aluminium is currently trading at $2,250 and the risk-free interest rate is 5.5% with continuous compounding. (i) What should be
Suppose that a tonne of aluminium is currently trading at $2,250 and the risk-free interest rate is 5.5% with continuous compounding. (i) What should be a fair forward price of a forward contract on one tonne of aluminium deliverable 8 months from now? (ii) Suppose now that, if you needed to store one tonne of aluminium for 8 months, you would have to pay $102 upfront. What should be the fair forward price after accounting for the storage costs?
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