Two Assets $A$ And $B$ Have the Same Spot Price Today $A$ Is Expected to Grow at 10% Over the Next Year

question 12

Multiple Choice

Two assets $A$ and $B$ have the same spot price today. The price of asset $A$ is expected to grow at 10% over the next year and that of asset $B$ is expected to grow at 10% also. Asset $A$ has a standard deviation of returns of 10% over the year and asset $B$ has standard deviation of 15%. Which of the following is true if there are no holding costs or benefits?

• A) Asset \(A\) 's one-year forward price will be less than that of asset \(B\) .
• B) Asset \(A\) 's one-year forward price will be greater than that of asset \(A\) .
• C) Asset \(A\) 's one-year forward price will be equal to that of asset \(B\) .
• D) Any of the above may be true.

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Definitions:

Responsibility Accounting System

An accounting framework that tracks financial performance by specific areas of responsibility, such as departments or managers.

Managers' Performance

Refers to the assessment and evaluation of the effectiveness and efficiency with which managers achieve business objectives and goals.

Cost Accounting System

A system of accounting for recording, classifying, allocating, and reporting costs associated with the production of goods and services.

Managerial Accounting System

A managerial accounting system focuses on providing financial and non-financial information to an organization's internal managers for decision-making purposes.