Ignoring Convenience Yields, the Theoretical Futures Price for a Commodity

question 5

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:

Adjusting Entries

Journal entries made at the end of an accounting period to update account balances to reflect accurate financial activity and balances.

Prepaid Items

Expenses paid in advance for goods or services to be received or used in the future, such as insurance or rent.

Accrued Expenses

Costs that have been incurred but not yet paid or documented in the accounting records during a specific accounting period.

Liability Accounts

Financial accounting records that represent the obligations or debts a company owes to others.