Cotton has a spot price for immediate delivery of $0.35 per pound. There is a market for cotton futures contracts for delivery in nine months. Each futures contract is for delivery of 50,000 pounds of cotton, with an initial margin of $5000 per contract. The per-annum net convenience yield for holding cotton over the next nine months is 1%. The interest rate is 5%, stated as a continuously- compounded annual rate. What is the current futures price of cotton for delivery in nine months?
Cotton has a spot price for immediate delivery of $0.35 per pound. There is a market for cotton futures contracts for delivery in nine months. Each futures contract is for delivery of 50,000 pounds of cotton, with an initial margin of $5000 per contract. The per-annum net convenience yield for holding cotton over the next nine months is 1%. The interest rate is 5%, stated as a continuously- compounded annual rate. What is the current futures price of cotton for delivery in nine months?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Cotton has a spot price for immediate delivery of $0.35 per pound. There is a market for cotton
futures contracts for delivery in nine months. Each futures contract is for delivery of 50,000 pounds
of cotton, with an initial margin of $5000 per contract. The per-annum net convenience yield for
holding cotton over the next nine months is 1%. The interest rate is 5%, stated as a continuously-
compounded annual rate. What is the current futures price of cotton for delivery in nine months?
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