Skip to Main Content
Derivatives and Risk Management, 1st Edition
book

Derivatives and Risk Management, 1st Edition

by Sundaram Janakiramanan
May 2024
Intermediate to advanced content levelIntermediate to advanced
542 pages
27h 26m
English
Pearson India
Content preview from Derivatives and Risk Management, 1st Edition
Forward Contracts 53
Solution to Problem 4.1
Step 1: Calculate the cost of carry.
Since the total cost of carry consists of opportunity and storage costs, these costs need to be calculated.
Opportunity Cost:
Amount of investment on April 1 = 12,000 × 1,000 = INR 12,000,000
Opportunity interest rate = 8% per year or 2% for 3 months
Interest lost = 12,000,000 × 2% = INR 240,000
Storage cost = INR 80,000
Total cost of carry = INR 240,000 + INR 80,000 = INR 320,000
Step 2: Calculate the cost of carry per gram of gold.
Cost of carry per gram of gold =
320,000
1000
= INR 320
Step 3: Calculate the forward price.
Forward price = Spot price + Cost of carry = ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Start your free trial

You might also like

Derivatives and Risk Management

Derivatives and Risk Management

Madhumathi Madhumathi, Ranganatham Ranganatham
Derivatives and Risk Management

Derivatives and Risk Management

Sundaram Janakiramanan

Publisher Resources

ISBN: 9781299447547Publisher Website