Suppose that you want to borrow a widget beginning in March of Year 0 and ending in December of Year 0.

What interest will be required to make the transaction fair to both parties? Using the no-arbitrage principle to this question. The interest on this borrowing should be paid in terms of the widget. For example, 10% is the interest, then, you need to repay to 1.1 units of the widget in December.

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Q. 7 Assume that the continuously compounded interest rate is 6% and the storage cost of widgets is $0.03 quarterly (payable at the end of the quarter). Here is the forward price curve for widgets: Year 0 Mar 3.000 Year 0 Dec 2.750 Q. 7 Assume that the continuously compounded interest rate is 6% and the storage cost of widgets is $0.03 quarterly (payable at the end of the quarter). Here is the forward price curve for widgets: Year 0 Mar 3.000 Year 0 Dec 2.750