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Answer: Ownership of the commodity is modeled as a “real option” to the owner
A **high convenience yield** means that holding the physical commodity provides important non-monetary benefits to the owner. That makes ownership resemble a **real option**. - It does **not** suggest contango; high convenience yield tends to support **backwardation**. - It does not make the commodity a financial/investment commodity. - The best answer is **D**.
Author: Manit Arora
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Question 187.7: Which of the following is most likely true if a commodity has a high convenience yield?
A
The commodity’s forward curve exhibits contango
B
It is a financial (investment) commodity
C
There is a no-arbitrage forward price for the commodity, rather than a no-arbitrage region
D
Ownership of the commodity is modeled as a “real option” to the owner
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