If the present value of storage costs exceeds the present value of its convenience yield, then the commodity’s forward price is most likely:

Question

BlackTom AI · Accepted Answer

To analyze forward prices for commodities, we use the cost-of-carry framework, which expresses the forward price as F = S0 × e^{(r + storage costs − convenience yield) × T} for a non-dividend asset with storage costs and convenience yield considered.
Option 1: 'Higher than the spot price compounded at the risk-free rate.' If the present value of storage costs exceeds the present value of the convenience yield, the net carry cost (storage minus convenience yield) is positive. This pushes the forward price above the spot price grown at the risk-free rate, so F > S0 × e^{rT}. This aligns with the cost-of-carry intuition.
Option 2: 'The same as the spot price compounded at the risk-free rate.' This would imply zero net carry cost (storage costs equal convenience yield), which contradicts the given condition that PV storage costs exceed PV convenience yield, implying a positive carry.
Option 3: 'Less than the spot price compounded at the risk-free rate.' A positive net carry cost would raise, not lower, the forward price relative to the risk-free compounding of the spot. Therefore this option is inconsistent with positive carry.
In summary, when storage costs exceed convenience yield in present value terms, the forward price tends to lie above the risk-free-accumulated spot, reflecting a positive cost of carrying the commodity until delivery.

BU.232.710.W1.SP25 Final Exam

If the present value of storage costs exceeds the present value of its convenience yield, then the commodity’s forward price is most likely:

查看解析

登录即可查看完整答案

类似问题

If the present value of storage costs exceeds the present value of its convenience yield, then a commodity’s forward price is most likely:

The spot price of a stock index is $1000, the risk-free interest rate is 7%, and the continuous dividend yield on the index is 2%. What is the cost of carrying this asset over time?

In a consumer society, many adults channel creativity into buying things

Economic stress and unpredictable times have resulted in a booming industry for self-help products

People born without creativity never can develop it

A product has a selling price of $20, a contribution margin ratio of 40% and fixed cost of $120,000. To make a profit of $30,000. The number of units that must be sold is: Type the number without $ and a comma. Eg: 20000

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单