CMA Final · Strategic Financial Management · Forwards and Futures
The spot price of gold is ₹60,000 per 10 grams. Storage costs are ₹600 per 10 grams for a year, payable at the end of the year, and the risk-free rate is 10% p.a. What is the no-arbitrage 1-year forward price per 10 grams, treating storage cost as paid at maturity?
The forward price is ₹66,600 per 10 grams. Spot is compounded at 10% to ₹66,000, and the storage cost of ₹600 paid at maturity is added without compounding, giving ₹66,600.
- A₹66,600Correct
- B₹66,000
- C₹66,660
- D₹60,600
Explanation
Forward = S x (1+r) + storage cost at maturity = 60,000 x 1.10 + 600 = 66,000 + 600 = ₹66,600. ₹66,000 omits storage cost, and ₹66,660 wrongly compounds the storage cost for a year, though it is paid only at the end.
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