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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 and storage cost is 3% per annum of spot price, both simple. Ignoring convenience yield, the theoretical 6-month futures price is closest to:

The theoretical futures price is Rs 53,750. Financing and storage together cost 15% a year, which is 7.5% for six months. Adding 7.5% to the Rs 50,000 spot price gives Rs 53,750. Using a full year of carry would wrongly give Rs 57,500.

  1. ARs 53,750Correct
  2. BRs 57,500
  3. CRs 56,000
  4. DRs 51,500

Explanation

Total carry cost = 12% + 3% = 15% per annum. For 6 months, 15% x 0.5 = 7.5%. Futures price = 50,000 x 1.075 = Rs 53,750. Using a full year (Rs 57,500) is the wrong time base, and counting only financing for 6 months gives Rs 53,000, not offered.

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