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Q.27 An asset that provides no income has a storage cost of USD3 per unit, paid at the end of the year. If the spot price of the asset is USD220 and the risk-free rate is 5%, the futures price for the asset, assuming the expiry date is exactly one year from today, is closest to: | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

The forward or futures price of an asset with a storage cost is given by the formula: $F_0 = S_0 e^{rT} + FV(\text{storage costs})$ Since the storage cost of USD 3 is paid exactly at the end of the year (at expiry), its future value at $T=1$ is simply USD 3.

Using continuous compounding for the risk-free rate: $F_0 = 220 \times e^{0.05 \times 1} + 3$ $F_0 = 220 \times 1.051271 + 3$ $F_0 \approx 231.28 + 3 = 234.28$

Therefore, the futures price is closest to $234.28.

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Q.27 An asset that provides no income has a storage cost of USD3 per unit, paid at the end of the year. If the spot price of the asset is USD220 and the risk-free rate is 5%, the futures price for the asset, assuming the expiry date is exactly one year from today, is closest to:

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