Chapter 5 Determination of Forward and Futures Prices

15) As the convenience yield increases, which of the following is true?

A) The one-year futures price as a percentage of the spot price increases

B) The one-year futures price as a percentage of the spot price decreases

C) The one-year futures price as a percentage of the spot price stays the same

D) Any of the above can happen

16) As inventories of a commodity decline, which of the following is true?

A) The one-year futures price as a percentage of the spot price increases

B) The one-year futures price as a percentage of the spot price decreases

C) The one-year futures price as a percentage of the spot price stays the same

D) Any of the above can happen

17) Which of the following describes a known dividend yield on a stock?

A) The size of the dividend payments each year is known

B) Dividends per year as a percentage of today's stock price are known

C) Dividends per year as a percentage of the stock price at the time when dividends are paid are known

D) Dividends will yield a certain return to a person buying the stock today

18) Which of the following is an argument used by Keynes and Hicks?

A) If hedgers hold long positions and speculators holds short positions, the futures price will tend to be higher than expected future spot prices

B) If hedgers hold long positions and speculators holds short positions, the futures price will tend to be lower than expected future spot prices

C) If hedgers hold long positions and speculators holds short positions, the futures price will tend to be lower than today's spot prices

D) If hedgers hold long positions and speculators holds short positions, the futures price will tend to be higher than today's spot prices

19) Which of the following describes contango?

A) The futures price is below the expected future spot price

B) The futures price is below today's spot price

C) The futures price is a declining function of the time to maturity

D) The futures price is above the expected future spot price

20) Which of the following is true for a consumption commodity?

A) There is no limit to how high or low the futures price can be, except that the futures price cannot be negative

B) There is a lower limit to the futures price but no upper limit

C) There is an upper limit to the futures price but no lower limit, except that the futures price cannot be negative

D) The futures price can be determined with reasonable accuracy from the spot price and interest rates