Assume that the continuously compounded interest rate is 6% and the storage cost of widgets is $0.03 quarterly (payable at the end of the quarter). Here is the forward price curve for widgets:

a) Suppose that you want to borrow a widget beginning in December of Year 0 and ending in March of Year 1. What payment will be required to make the transaction fair to both parties?

b) Suppose that you want to borrow a widget beginning in December of Year 0 and ending in September of Year 1. What payment will be required to make the transaction fair to both parties?
 

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2004 2005 2006 Dec Mar Jun Sep Dec Mar Jun 3.000 3.075 3.152 2.750 2.822 2.894 2.968 2004 2005 2006 Dec Mar Jun Sep Dec Mar Jun 3.000 3.075 3.152 2.750 2.822 2.894 2.968