P1.T3.205. Hull's Forward and Futures Prices (II)

Discussion in 'Today's Daily Questions' started by Suzanne Evans, Jul 24, 2012.

  1. Suzanne Evans

    Suzanne Evans Administrator

    Questions:

    205.1. A long forward contract, entered into three months prior, on a asset with a current price of $42.00 and continuous dividend yield of 5.0% has a remaining maturity of nine months (0.75 years). The delivery price (K) is $40.00. The riskfree rate is 2.0% with continuous compounding. Which is nearest to the value (f) of the forward contract?

    a. -$0.85
    b. $0.03
    c. $1.05
    d. $3.22

    205.2. The spot price of oil is $90.00 per barrel while the risk-free rate is 1.20% per annum with continuous compounding. The cost to store oil is a constant 0.20% per month. If the one year forward price is $91.73, which is nearest to the implied per annum convenience yield?

    a. Zero (the forward curve exhibits contango)
    b. 0.30%
    c. 0.59%
    d. 1.70%

    205.3. The spot price of soybeans is $17.00 per bushel. The riskless rate is 1.0% per annum with continuous compounding. The storage cost is 3.0% per annum and the convenience yield is 7.0% per annum. If there is a delivery period, in this circumstance, on what basis should soybeans futures price be calculated?

    a. As if delivery will take place at the beginning of the delivery period
    b. As if delivery will take place in the middle of the delivery period
    c. As if delivery will take place at the end of the delivery period
    d. As if delivery will not occur

    Answers:
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