LOS d: Identify the different types of monetary and non-monetary benefits and costs associated with holding the underlying asset, and explain how they affect the futures price.

Q1. All of the following are examples of the monetary benefits or costs of holding an asset underlying a futures contract EXCEPT:

A)   storage and insurance costs for storing gold.

B)   having a ready supply of the asset for business purposes.

C)   dividend payments from a portfolio of stocks.

Q2. The return from the non-monetary benefits of holding the asset underlying a futures contract is (are) called:

A)   negative-storage costs.

B)   the non-monetary return.

C)   the convenience yield.

Q3. Consider two assets with identical storage costs. For the asset with the greater convenience yield, the percentage difference between the no-arbitrage price and the spot price will be:

A)   greater at contract initiation but the same at expiration.

B)   greater throughout the term of the contract.

C)   lower any time prior to expiration.

LOS d: Identify the different types of monetary and non-monetary benefits and costs associated with holding the underlying asset, and explain how they affect the futures price. fficeffice" />

Q1. All of the following are examples of the monetary benefits or costs of holding an asset underlying a futures contract EXCEPT:

A)   storage and insurance costs for storing gold.

B)   having a ready supply of the asset for business purposes.

C)   dividend payments from a portfolio of stocks.

Correct answer is

Having a ready supply of an asset for business purposes is a non-monetary benefit of holding the asset.

Q2. The return from the non-monetary benefits of holding the asset underlying a futures contract is (are) called:

A)   negative-storage costs.

B)   the non-monetary return.

C)   the convenience yield.

Correct answer is C)

The return from the non-monetary benefits of holding the asset underlying a futures contract is called the convenience yield.

Q3. Consider two assets with identical storage costs. For the asset with the greater convenience yield, the percentage difference between the no-arbitrage price and the spot price will be:

A)   greater at contract initiation but the same at expiration.

B)   greater throughout the term of the contract.

C)   lower any time prior to expiration.

Correct answer is C)

The net costs of holding an asset are Net Costs = Storage Costs – Convenience Yield. When the convenience yield is higher, net costs of carrying (storing) the asset are lower, and the futures price will be lower. The difference between the spot price and the futures price is zero at expiration for any asset.

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