If the five-month futures contract price for gold is currently $1,671.39 per ounce, what should we expect the current spot price to be if the annual interest rate is 3.75%?
A)$1,645.95
B)$1,658.47
C)$1,668.58
D)$1,671.39
E)$1,699.23

Question

Quizplus · Accepted Answer

The spot price should be lower than the futures price in a normal market due to the cost of carry, which includes storage costs and the interest forgone on the money tied up in the investment. Given an annual interest rate of 3.75%, the calculation would involve discounting the futures price back to the present value. The correct answer, $1,645.95, reflects this calculation.

If the Five-Month Futures Contract Price for Gold Is Currently