Alternative Investments Q25
0. If the price of a commodity futures contract is below the spot price, it is most likely that the:
- Option : B
- Explanation : Since the futures price is less than the spot price, the market is in backwardation. The convenience yield must be more than the cost of carry to arrive at a futures price below the spot price because the futures price is approximately equal to: spot price * (1 + r) + storage cost – convenience yield. The cost of carry is defined as interest cost plus storage cost. When the market is backwardation the roll yield for the long party is positive.
