In northeast Australia, wool (a commodity) is sold twice a year after shearing, in April and...
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In northeast Australia, wool (a commodity) is sold twice a year after shearing, in April and October, and any surplus is stored by growers and buyers. The current spot price of wool per kg is $15.00, storage and related costs = $1.50 per kg of wool and there is a convenience 'saving' of $0.30 per kg of wool. The annual risk-free interest rate is 3.5% p.a. < Estimate the 6-month forward price of wool per kg. b. State the impact on the forward price in part (a) if there was an adverse market shock (e.g. a virus, killing sheep) that limited the amount of wool available for storage (no calculation required).< a. In northeast Australia, wool (a commodity) is sold twice a year after shearing, in April and October, and any surplus is stored by growers and buyers. The current spot price of wool per kg is $15.00, storage and related costs = $1.50 per kg of wool and there is a convenience 'saving' of $0.30 per kg of wool. The annual risk-free interest rate is 3.5% p.a. < Estimate the 6-month forward price of wool per kg. b. State the impact on the forward price in part (a) if there was an adverse market shock (e.g. a virus, killing sheep) that limited the amount of wool available for storage (no calculation required).< a.
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a To estimate the 6month forward price of wool per kg we need to consider the storage and related co... View the full answer
Related Book For
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
Posted Date:
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