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CFA Level 2
Derivatives

Futures Pricing Using Cost-of-Carry Model

Hard Forward Pricing And Valuation Futures Contracts

A trader is analyzing a futures contract for crude oil. The current spot price of crude oil is $60 per barrel, and the futures price for a contract expiring in 6 months is $62 per barrel. The risk-free interest rate is 2% per annum, and the storage cost for holding crude oil is $1 per barrel over the 6-month period. Assuming no arbitrage opportunities exist, what should be the theoretical futures price of the crude oil contract, based on the cost-of-carry model?

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