If the seven-month futures contract price for rhodium is currently $12,100 per ounce, what should we expect the current spot price to be if the annual interest rate is 2.2%?
A)$11,656.92
B)$11,942.39
C)$11,947.37
D)$11,948.39
E)$12,254.58

Question

Quizplus · Accepted Answer

We can use the cost of carry formula to relate the spot price to the futures price:

F = S(1 + r)^t

where F is the futures price, S is the spot price, r is the interest rate, and t is the time to expiration (in years). Solving for the spot price, we get:

S = F / (1 + r)^t

Plugging in the given values, we get:

S = 12,100 / (1 + 0.022/12)^7/12
S = 11,947.37

Therefore, the expected spot price is $11,947.37.

If the Seven-Month Futures Contract Price for Rhodium Is Currently