1a) A commodity’s spot price as of December 31 is $50/unit, and storage costs ar

Question

1a) A commodity’s spot price as of December 31 is $50/unit, and storage costs are $1.00/unit at the end of every month, starting January 31. If the effective monthly interest rate is 0.7% (compounded monthly, not continuously), what will be the forward price for delivery at the end of July, assuming the commodity is stored?

Answers: a. $59.85 b. $59.65 c. $59.50 d. $59.77 e. $57.15

1b) The average daily temperatures over one week (in degrees Fahrenheit) are 71, 66, 69, 71, 67, 61, and 79. What are the cooling degree-days (CDDs) for this week?

Answers: a. 33 b. 29 c. 37 d. 4 e. 0

Please show me how to solve these with proper formulas. Thank you!

Explanation / Answer

Forward Price for 1st month = (50+1)*1.007 = 51.36

Forward Price for 2nd month=  (51.36+1)*1.007 = 52.72

Forward Price for 3rd month =  (52.72+1)*1.007 = 54.10

Forward Price for 4th month =  (54.10+1)*1.007 = 55.49

Forward Price for 5th month =  (55.49+1)*1.007 = 56.88

Forward Price for 6th month =  (56.88+1)*1.007 = 58.29

Forward Price for 7th month =  (58.29+1)*1.007 = 59.70

A cooling degree day is nothing but how many degress the day's average is above 65o Fahrenheit. So to calculate CCD, we need to subtract 65 from the days average. If average is less than 65, then it is 0.

Daily average temp = 71, 66, 69, 71, 67, 61, 79

CCD = Subtract 65 from all the values and add the resultant

CCDs = 6+1+4+6+2+0+14 =33

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