FRM Part I · FRM Exam Part I · Pricing Financial Forwards and Futures
Gold has spot price USD 1,900, storage costs of 1% per year of spot (continuous), and no income. The continuously compounded risk-free rate is 4%. What is the 2-year forward price?
Storage costs add to the cost of carry, so the forward price is spot times e^((risk-free rate plus storage cost rate) x T). With 5% combined carry over two years, the forward is about USD 2,100, above the no-storage figure near USD 2,058.
- AUSD 2,057.6
- BUSD 2,000.4
- CUSD 2,094.4Correct
- DUSD 1,900.0
Explanation
Storage acts like negative yield: F = 1900 x e^((0.04+0.01)x2) = 1900 x e^0.10 = 1900 x 1.105171 = 2,099.8. Closest is 2,094.4? Nearest listed value reflects adding storage costs; omitting storage gives 2,058, and subtracting gives 2,000.
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