- Option : B
- Explanation : If the present value of convenience yield exceeds the present value of its storage costs, then the commodity’s forward price is less than the spot price compounded at the risk-free rate.

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22. Which of the following best describes the price of a forward contract?

- Option : A
- Explanation : Costs increase the forward price and benefits reduce the forward price.

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- Option : C
- Explanation : This FRA expires in 30-days and is based on a 90-day loan which starts on day 30. The forward rate represents the rate which can be locked in today for a 90-day loan starting 30-days from today. This rate is calculated based on the 30-day spot rate and the 120-day spot rate.

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25. Ignoring the time value of money, the forward contract payoffs will be:

- Option : C
- Explanation : Forward payoffs occur all at expiration, whereas futures payoffs occur on a day-to-day basis but would equal forward payoffs ignoring interest.

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