For firm needs 1,000,000 barrels of WTI crude oil 6 months from today. You enter into a forward contract to receive WTI crude oil 6 months from today. The current price of a barrel of WTI is $43, the cost of storage for 6-months is $4.2, and the risk-free rate of return is 2% for 6 months. The cost of storage needs to be paid today. 

What will the maximum contracted price today be for the payment to be made 6-months from now for 1,000,000 barrel delivery? You will pay the counterparty the contracted price 6-months from now. Assume zero transaction costs?

Answer rating: 100% (QA)

To calculate the maximum contracted price today we need to consider the cost of carrying the oil for ... View the full answer