Suppose that the theoretical forward price on a 3-month commodity contract is Soe = $60, while...

 

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Suppose that the theoretical forward price on a 3-month commodity contract is Soe" = $60, while the observed forward price is $55. The current spot price is $58. Based on the above information, explain (or show) why following statements are either true or false? The price difference can be attributed to about 35% convenience yield. This froward price discrepancy is consistent with the fact that the commodity cannot be short sold in the spot market. The implied repo rate is about 5%. This commodity belongs to the cash and carry market as opposed to price discovery market. Suppose that the theoretical forward price on a 3-month commodity contract is Soe" = $60, while the observed forward price is $55. The current spot price is $58. Based on the above information, explain (or show) why following statements are either true or false? The price difference can be attributed to about 35% convenience yield. This froward price discrepancy is consistent with the fact that the commodity cannot be short sold in the spot market. The implied repo rate is about 5%. This commodity belongs to the cash and carry market as opposed to price discovery market.

Answer rating: 100% (QA)

Convenience Yield a 05 21025 In 5558 0 26 Hence given Stat... View the full answer