Here the storage cost is a cash amount paid quarterly in advance, so we add the present value of the storage costs to the spot price and then grow the total at the risk-free rate.

Quarterly storage payment:

$$0.64/4 = 0.16$$

For a six-month horizon, there are two payments:

• at $t=0$: `$0.16`
• at $t=0.25$: `$0.16`$ discounted by $e^{-0.04\times 0.25}$

Present value of storage costs:

$$PV = 0.16 + 0.16e^{-0.01} \approx 0.16 + 0.1584 = 0.3184$$

Then:

$$F_0 = (7.00 + 0.3184)e^{0.04\times 0.5} = 7.3184 \times e^{0.02} \approx 7.3184 \times 1.0202 \approx 7.47$$

Correct answer: C. $7.47