CFA Level I · CFA Level I Exam · Pricing and Valuation of Futures Contracts
A commodity spot price is 100. The risk-free rate is 5% continuously compounded, storage costs are 2% per year of spot price continuously compounded, and the convenience yield is 3% per year. The theoretical price of a 1-year futures contract is closest to:
The futures price is about 104. Net cost of carry is 5% plus 2% storage minus 3% convenience yield, or 4%, so F equals 100 times e to the 0.04, roughly 104.08.
- A100.00Correct
- B104.00
- C107.00
Explanation
Net carry = r + storage − convenience yield = 5% + 2% − 3% = 4%, which gives F = 100 × e^0.04 = 104.08. That points to 104.00, not 100.00. Check: the key must be 104.
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