Answer-first summary for fast verification
Answer: $7.58
Use the cost-of-carry formula for a commodity with no income: \[ F_0 = S_0 e^{(r + u)T} \] where: - \(S_0 = 7.00\) - \(r = 0.04\) - \(u = 0.12\) - \(T = 0.5\) So, \[ F_0 = 7.00 \times e^{(0.04+0.12)\times 0.5} = 7.00 \times e^{0.08} \approx 7.00 \times 1.08329 \approx 7.58 \] **Correct answer: D. $7.58**
Author: Manit Arora
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Question-165.1. Assume the spot price of wheat is $7.00 per bushel with a storage cost of 12.0% per annum while the riskless rate is 4.0%, both compounded continuously. What is the implied six-month futures price, F(0.5)?
A
$6.69
B
$7.28
C
$7.47
D
$7.58
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