Price at which contract is repriced when mark-to-market and repricing contract T

Question

Price at which contract is repriced when mark-to-market and repricing contract The spot price is $2.00 per gallon at the time you sign a forward contract at the no-arb forward price, on 24,000 gallons for delivery in 8 months. Assume storage costs are SO. The contract has a "mark-to-market" provision which requires that the contract be settled and re-priced after six months. At six months the spot price per gallon spot S2.20. Bskisserate is 5%. At what forward price is the contract re-priced? 21.

Explanation / Answer

Price at which the forward contract is repriced=24000*2.2*e^(5%*2/12)=$53241.83844

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