# Commodity Forwards and Futures

1. 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?

A) \$5.808

B) \$5.736

C) \$5.968

D) \$6.006

I have calculated the future value of storage costs as follows: Future value of storage costs = 0.04 x (1/1.0053 + 1/1.0052 + 1/1.005 + 1) = 0.158809925. But I am unable to derive the answer A.

I have also encountered difficulty in solving the following question:

1. 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?

A) \$0.35 gain

B) \$0.35 loss

C) \$1.00 gain

D) \$1.00 loss