Question: (Pricing a forward contract with dividends) The current price of silver is $206 per ounce. The storage cost is $1 ounce per year, payable quarterly in advance. Assuming a constant annual interest rate of 9% compounded quarterly, what is the theoretical forward price of silver for delivery in 9 months? Please submit your answer rounded to the nearest integer - for example, if your answer is 19.819, round it to either 20.

Question: (Pricing a forward contract with dividends) The current price of silver is $206 per ounce. The storage cost is $1 ounce per year, payable quarterly in advance. Assuming a constant annual interest rate of 9% compounded quarterly, what is the theoretical forward price of silver for delivery in 9 months? Please submit your answer rounded to the nearest integer - for example, if your answer is 19.819, round it to either 20.

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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Question: (Pricing a forward contract with dividends)

The current price of silver is $206 per ounce. The storage cost is $1 ounce per year, payable quarterly in advance. Assuming a constant annual interest rate of 9% compounded quarterly, what is the theoretical forward price of silver for delivery in 9 months?

Please submit your answer rounded to the nearest integer - for example, if your answer is 19.819, round it to either 20.

Expert Solution

Step 1

Forward price refers to the future price that is agreed to be paid by the parties entering in to contract for the specific asset at future date. It is based on the current spot price including carrying costs of assets, storage cost, and interest cost.

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