Baran

 

The correct answer is D

 

All of the statements are correct. A synthetic commodity forward price can be derived by combining a long position on a commodity forward, F0,T , and a long zero-coupon bond that pays F0,T at time T. The total cost at time 0 is equivalent to the cost of the bond, e-rTF0,T. The forward contract does not have any initial cash flows at time 0. The payoff at time T is ST – F0,T + F0,T = ST, where ST is the spot price of the commodity at time T. The present value of the expected spot price at time T is E(ST)e–αT. This amount is equivalent to the cost of the bond, e-rTF0,T, because both represent the amount you would pay today to receive the commodity at time T.

Baran

 

AIM 6: Define the lease rate and how it determines the no-arbitrage values for commodity forwards and futures, and explain the relationship between lease rates and contango and lease rates and backwardation, respectively.

 

1、Which of the following statements regarding the lease rate in commodity futures contracts is incorrect?

 

The lease rate is the return required by the lender in exchange for lending a commodity.

Assuming it is positive, as the lease rate increases, the futures price for a commodity increases.

In a cash-and-carry arbitrage, the lease rate is earned whether or not the underlying commodity is actually loaned.

Lease rates are similar to dividends paid to the lender of a share of common stock.

If the lease rate is less than the risk-free rate, the forward market is said to be in contango.

A) III and V.

 

B) I, III, and V.

 

C) II and IV.

 

D) II and III.