Question
The spot price of oil is $80 per barrel and the cost of storing a barrel of oil for one year is $3, in terms
The spot price of oil is $80 per barrel and the cost of storing a barrel of oil for one year is $3, in terms of the value at the end of one year. The risk-free interest rate is 10% per annum with annual compounding. According to the market one-year forward price of oil, the convenience benefit of carrying a barrel of oil for one year is estimated to be $2, in terms of the value at the end of one year. This implies that today the market one-year forward price of oil is $___________. (*Suppose that the size of the forward contract is simply one barrel of the oil.)
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