Suppose that the current price of gold is $1000 per ounce. It costs $2 per ounce per month to store gold (payable monthly in advance). Suppose also that the term structure is flat with a continuously compounded rate of interest of 5% for all maturities. What should be the forward price of gold for delivery in three months?

Explanation: We first find the present value of the storage costs: 2 + 2 * e^{(-0.05 * 1/12)} + 2 * e^{(-0.05 * 2/12)} = 5.9751.

The forward price is (1000 + 5.9751) * e^{(0.05 * 0.25)} = 1018.63.