NISM Certifications · NISM-Series-XV: Research Analyst · Fundamental Analysis of Commodities
Spot price of a non-perishable commodity is Rs 50,000 per unit. Financing cost is 12% per annum, storage cost is Rs 1,000 per unit for the period, and there is no convenience yield. Using the simple cost of carry model, the fair value of a 3-month futures contract is:
The fair futures price is Rs 52,500. Three months of financing at 12% on Rs 50,000 is Rs 1,500, and storage adds Rs 1,000, so the cost of carry of Rs 2,500 is added to the spot price of Rs 50,000.
- ARs 51,500
- BRs 52,500Correct
- CRs 54,000
- DRs 50,500
Explanation
Financing for 3 months = 50,000 x 12% x 3/12 = Rs 1,500. Add storage Rs 1,000. Fair futures price = 50,000 + 1,500 + 1,000 = Rs 52,500. Rs 51,500 omits storage; Rs 50,500 omits financing; Rs 54,000 uses a full year of financing (6,000) without storage.
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