Exercise example III:

Forward pricing $-$ theoretical example

Assume an asset sells in the spot market for a price of $$94.$ The risk$-$free rate is $4\%,$ and the forward contract on the asset expires in six months. If the asset pays a cash flow of $$2\mathrm{.}25$ and storage costs are $$1$ for these six months, what is the correct forward price?

$S_0(T)=$$$94T=6$ months $=0\mathrm{.}5$ years $r=4\%$

$=$$$1(storage$ costs$)$

$Y=$$$2\mathrm{.}25(dividend)$