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Find the current forward price

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Consider a forward contract on silver. Each contract covers 100 ounces of silver and matures one year from now. Suppose it costs $1 per ounce per year to store silver with the payment being made at the end of the year. Assume that the spot price of silver is $20 per ounce, the continuously compounded risk-free interest rate is 3% per annum for all maturities.

1. In the absence of arbitrage, find the current forward price. Show your calculations.

2. Assume you immediately sell one contract. What is the value of your position in 6 months' time if the silver spot price has increased to $25 per ounce and interest rates have not changed? Show your calculations.

Reference no: EM133074342

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