Spot at time = 0 is $100. One-year forward. Long party must buy a bbl of oil in 1 year. Because he doesn't have to buy for a year, he gets to invest the $100 in a 1-year CD and earn interest. Rfr is 5%. What is the fair forward price for this deal?

Consider the problem above. Now consider the short part must store the oil for the year, which costs $4 per bbl. Now what is the best estimate for a forward price?

Answer rating: 100% (QA)

To calculate the fair forward price in the first scenario where the Long party can invest the ... View the full answer