The theoretical price of the future contract which expires after 6 months using the cost-of carry model. Cost of trading future contract is $15. Introduction: Future contract : It is supposed to be a legal agreement required to purchase or sell a commodity or asset in the future. This contract will specify the price at which the purchase or sale of the commodity or asset should be done at a specified time which will be agreed by the parties in advance.

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Chapter 23, Problem 1CP

a.

Summary Introduction

To compute: The theoretical price of the future contract which expires after 6 months using the cost-of carry model. Cost of trading future contract is $15.

Introduction:

Future contract: It is supposed to be a legal agreement required to purchase or sell a commodity or asset in the future. This contract will specify the price at which the purchase or sale of the commodity or asset should be done at a specified time which will be agreed by the parties in advance.

b.

Summary Introduction

To calculate:The lower bound of the future contract which expires after 6 months.

Introduction:

Cost-of-carry model: Cost of carrying refers to the net cost of a holding position. This model is used when future contracts are priced. In other words, it is the sum of risk-free interest and storage cost after deducting the dividend yield.

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