CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

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?
A. $1007.04
B. $1012.84
C. $1018.63
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.

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