Wheat is selling at a spot rate $25 per tonne.Storage costs are $2 for the year, and financing costs are 5% per year.What is the forward price for a one-year forward contract for wheat?

Question

Quizplus · Accepted Answer

The forward price can be calculated by adding the spot price, storage costs, and financing costs (calculated as a percentage of the spot price). Here, it's $25 (spot price) + $2 (storage costs) + $1.25 (5% of $25 as financing costs) = $28.25.

Wheat Is Selling at a Spot Rate $25 Per Tonne