Find the forward price of titanium with delivery

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Suppose that the current price of titanium is $50G per oz with costless storage. The term structure is ?at with a continuously compounded rate of interest of 4% for all maturities

a) Find the forward price of titanium with delivery in three months

b) Assume it costs $?-5 per oz per month to store titanium. The storage cost is payable monthly in advance. What is the new forward price? What can explain ?1e price difference in (a) and (b)?

c) Assume storage costs are as in (b) and payable monthly in advance. If the forward price is given to be $550 per oz1 explain whether there is an arbitrage opportunity and how to exploit it. Use a table showing transactions and total net cash ?ows at the end of each month.

Reference no: EM133070684

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