Question: Suppose you are interested in purchasing a forward contract on oil to be delivered 1-year from now, but you are unsure of the proper price.

Suppose you are interested in purchasing a forward contract on oil to be delivered 1-year from now, but you are unsure of the proper price. You know that it costs $5/bbl to store the oil for a year, and that your current risk-free rate is 2%. Assume that there are no cash flows associated with storing the oil and that it is currently selling for $85.a.What is the forward contract price?

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