Question

The spot price of corn is $5.82 per bushel. The opportunity cost of capital for an investor is 0.6% per month. If storage costs of $0.03 per bushel per month are factored in, all else being equal, what is the future value of storage costs over a 6-month period?

a) 0.1827

b) 0.1534

c) 0.1684

d) 0.1772

Please show formula and steps. Thanks!

Answer 1

Future value = Amount*[{(1+r)^n -1}/r]

= 0.03[{(1+0.006)^6 - 1}/0.006]

=$0.1827

I.e. a