As Time Draws Closer to Contract Expiration, Futures Contract Prices

question 119

Multiple Choice

As time draws closer to contract expiration, futures contract prices can be expected to:

• A)increase as the demand for delivery intensifies.
• B)decrease as speculators resolve the uncertainty of prices.
• C)move similarly to broad-based market indices, such as the TSX 300
• D)converge upon the spot price.

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Definitions:

Compounded Quarterly

Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan on a quarterly basis.

Loan

A sum of money that is borrowed, usually from a financial institution or individual, which is expected to be paid back with interest.

Payments

Transactions made by individuals or entities to fulfill obligations or to purchase goods and services.

Present Value

The immediate valuation of an upcoming sum of money or series of cash transactions, based on a given rate of return.