You have been hired to run the wheat futures desk. For simplicity, assume interest rates are 0%. We are in March 2021(month3), and the price of wheat is currently $5 per bushel. Consider two wheat futures contracts, expiring in June 2021 (month 6) and September 2021 (month 9). Wheat can be stored for $1 per bushel per month. Wheat can also be planted in March. The total cost of buying a bushel of wheat seeds, planting the seeds, and growing the seeds into a bushel of wheat is $3. However, wheat takes six months to grow (i.e. if planted now, it can be harvested in September). For simplicity, suppose that one bushel can be harvested in September for each bushel planted in March. What are the fair prices of the June and September wheat futures contracts?

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Okay lets think through this stepbystep Current wheat price is 5bushel month 3 June futur... View the full answer