When Answering the Questions Below, Refer to the Following Table

question 20

Multiple Choice

When answering the questions below, refer to the following table of commodity forward and spot prices. The annual risk free interest rate is 4.0%.
$$\begin{array} { l c c c } \begin{array} { r } \text { Expiration } \\\underline {\text { Time }}\end{array} & \begin{array} { c } \text { Pork Bellies } \\\underline {\text { cents/pound }}\end{array} & \begin{array} { c } \text { Com } \\\underline {\text { cents/bushel }}\end{array} & \begin{array} { c } \text { Soybeans } \\\underline {\text { cents/bushel }}\end{array} \\\text { Today=spot } & 540 & 212 & 430 \\6 \text { months } & 560 & 208 & 440 \\12 \text { months } & 590 & 203 & 452 \\18 \text { months } & 625 & 200 & 445 \\24 \text { months } & 655 & 195 & 437\end{array}$$
-What is the approximate annualized lease rate on the 18-month soybean forward contract?

• A) 0.69%
• B) 1.21%
• C) 1.69%
• D) 2.31%

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers.

Excise Tax

A tax levied on specific goods, services, or transactions, often specific types of products such as gasoline, cigarettes, or alcohol.

Equilibrium Price

The cost at which the amount of a good consumers want to buy matches the amount producers are willing to sell, achieving a state of equilibrium in the market.

Allocative Efficiency

A state of the economy in which production is in line with consumer preferences; every good or service is produced up to the point where the last unit provides a benefit to consumers equal to the cost of producing it.