The Forward Price

The Cost of Carry

A forward price comes from carrying the asset to delivery.

highlighted = computed this step

Borrow, buy, deliver

To set the forward price, borrow $100.00 at 5%, buy the asset now, and deliver it at maturity T equals 1.

F0=S0(1+r)TF_0=S_0(1+r)^T

Fair forward price

At maturity, the loan repayment is $105.00, so the fair forward for this setup is $105.00. A different forward price would leave one side a riskless arbitrage.

S0=$100.00,r=5%,T=1,F0=$105.00S_0=\$100.00,\quad r=5\%,\quad T=1,\quad F_0=\$105.00

Model note

This argument computes a model forward price under the stated assumptions, not a market price or fair-value claim. It assumes borrowing and lending at one rate, no storage costs, no transaction costs, fees, taxes, credit risk, liquidity limits, collateral effects, or delivery frictions, and an asset held to delivery. This is descriptive, not investment advice.

one rate, no storage, no frictions\text{one rate, no storage, no frictions}