Question

The spot price of silver is $12.75 per ounce. The storage costs are proportional and equal to 1.95% per ounce per annum continuously compounded. Assuming that interest rates are 9.40% per annum for all maturities, calculate the futures price of silver for delivery in 9 months. (Answer with two digits decimal accuracy. Example: 17.53.)

Answer 1

Spot and Future Prices

The future price of the silver for delivery in 9 months is:

= $13.85.

Step-by-step explanation:

a) Data and Calculations:

Spot price of silver per ounce = $12.75

Storage costs per ounce per annum = 1.95% compounded continuously

Storage costs in 9 months = $0.19 ($12.75 (1.95% * 9/12)

Total cost = $12.94 ($12.75 + $0.19)

Interest rate = 9.4% per annum

Interest rate for 9 months = 7.05% (9.4%*9/12)

Future price of the silver for delivery in 9 months = $13.85 ($12.94 * 1.0705)