Forward and Futures

During the summer you had to spend some time with your uncle, who is a wheat farmer. Your uncle, knowing you are studying for an MBA at Harvard, asked your help. He is afraid that the price of wheat will fall, which will have a severe impact on his profits. Thus he asks you to compute the 1yr forward price of wheat. He tells you that its current price is $3.4 per bushel and interest rates are at 4%. However, he also says that it is relatively expensive to store wheat for one year. Assume that this cost, which must be paid upfront, runs at about $0.1 per bushel. What is the 1yr forward price of wheat?

© SolutionLibrary Inc. solutionlibary.com November 19, 2019, 5:26 pm 9836dcf9d7 https://solutionlibrary.com/business/finance/forward-and-futures-jj5m