Ignoring Convenience Yields,the Theoretical Futures Price for a Commodity with a Positive

question 6

Multiple Choice

Ignoring convenience yields,the theoretical futures price for a commodity with a positive cost of carry should typically exhibit

• A)Backwardation.
• B)Contango.
• C)Either backwardation or contango depending on the delivery month.
• D)Either backwardation or contango depending on the initial level of the spot price.

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Definitions:

Efficient

The characteristic of maximizing output or effectiveness with the least waste of time, resources, or effort.

Opportunities

Chances or circumstances that allow for growth, development, or success in various areas such as business, personal life, or education.

Marginally Optimal

Describes an economic decision where the marginal benefit from the last unit of good or service consumed or produced is equal to its marginal cost.

Equilibrium

A state in a market where demand equals supply, and the market clears at a certain price and quantity, leading to no incentive for change.