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CFA Level I Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives question

Derivatives / Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives

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Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives sample question

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Derivatives

Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives

A metals analyst prices a one-year forward contract on a commodity with a spot price of USD 1,200.00 per unit. The annual risk-free rate is 3.0% with annual compounding. Storage costs with a value of USD 24.00 as of expiration will be incurred, and the convenience yield of holding the physical commodity has a value of USD 10.00 as of expiration. The no-arbitrage one-year forward price is closest to:

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