Cotton has a spot price for immediate delivery of $0.35 per pound. There is a market for cotton futures contracts for delivery in nine months. Each futures contract is for delivery of 50,000 pounds of cotton, with an initial margin of $5000 per contract. The per-annum net convenience yield for holding cotton over the next nine months is 1%. The interest rate is 5%, stated as a continuously- compounded annual rate. What is the current futures price of cotton for delivery in nine months?
Cotton has a spot price for immediate delivery of $0.35 per pound. There is a market for cotton futures contracts for delivery in nine months. Each futures contract is for delivery of 50,000 pounds of cotton, with an initial margin of $5000 per contract. The per-annum net convenience yield for holding cotton over the next nine months is 1%. The interest rate is 5%, stated as a continuously- compounded annual rate. What is the current futures price of cotton for delivery in nine months?
Chapter2: The Domestic And International Financial Marketplace
Section: Chapter Questions
Problem 4P
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![Cotton has a spot price for immediate delivery of $0.35 per pound. There is a market for cotton
futures contracts for delivery in nine months. Each futures contract is for delivery of 50,000 pounds
of cotton, with an initial margin of $5000 per contract. The per-annum net convenience yield for
holding cotton over the next nine months is 1%. The interest rate is 5%, stated as a continuously-
compounded annual rate. What is the current futures price of cotton for delivery in nine months?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fee21c905-fae3-4032-8520-307191b205a4%2Faabeb2b6-d547-4896-b140-9facc20c2e06%2F0qf2en_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Cotton has a spot price for immediate delivery of $0.35 per pound. There is a market for cotton
futures contracts for delivery in nine months. Each futures contract is for delivery of 50,000 pounds
of cotton, with an initial margin of $5000 per contract. The per-annum net convenience yield for
holding cotton over the next nine months is 1%. The interest rate is 5%, stated as a continuously-
compounded annual rate. What is the current futures price of cotton for delivery in nine months?
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