Question

On May 20, 2020 , an investor entered into a three-month long forward contract on an...

On May 20, 2020 , an investor entered into a three-month long forward contract on an investment commodity X. The price of the commodity on May 20, 2020 is $40. This commodity provides income at a rate of 1.3% with continuous compounding and requires storage costs at a rate of 0.8% with continuous compounding. The risk-free rate of interest is 6% per year with semiannual compounding.

  1. What is the equivalent risk-free rate with continuous compounding?
  2. What is the cost of carry of this commodity?
  3. What should the price of this forward contract be on May 20, 2020?

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