chapter 6

The spot price of gasoline is 258 cents per gallon and the annualized risk free interest rate is 4.0%. Given a lease rate of 1.0%, a continuously paid storage rate of 0.5%, and a convenience yield of 0.75%, what is the no-arbitrage price range of a 1-year forward contract (in cents)?

Nine-month gold futures are trading for $1565 per ounce. The spot price is $1509 per ounce. LIBOR during each of the upcoming 4 quarters is listed as 1.04%, 1.22%, 1.30%, and 1.35%, respectively. Calculate the 9-month lease rate on the futures contract.

Forward prices for gold, in dollars per ounce, for the next five years are 1350, 1400, 1560, 1675, and 1756, respectively. A mine can be opened for 3 years at a cost of $2,000. Annual mining costs are a constant $500 and interest rates are 5.0%. When should the mine be opened to maximize NPV?

The 6-month futures price for oil is $96.60 per barrel (or 2.30 cents per gallon). The 6-month futures prices for gasoline and heating oil are 2.50 cents and 2.15 cents, respectively. What is the gross margin on a simple 3-2-1 crack spread?

The spot price of corn is $5.85 per bushel. The opportunity cost of capital for an investor is 0.5% per month. If storage costs of $0.04 per bushel per month are factored in, all else being equal, what is the likely price of a 4-month forward contract?

The spot price of corn is $5.82 per bushel. The opportunity cost of capital for an investor is 0.6% per month. If storage costs of $0.03 per bushel per month are factored in, all else being equal, what is the future value of storage costs over a 6-month period?

Oil is selling at a spot price of $42.00 per barrel. Oil can be stored at a cost of $0.42 per barrel per month. The opportunity cost of capital is 7.2% per year (or 0.6% per month). What is the gain or loss realized by an oil refinery that floats its exposure and purchases oil on the spot market in 2 months at a price of $43.00 per barrel, instead of hedging with a forward contract?