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Answer: low riskfree rate, high lease rate, low storage cost, high convenience yield
Backwardation is more likely when the factors that reduce forward prices are strong, especially a **high convenience yield** and a **low risk-free rate**. Among the choices, **C** best fits that pattern: - low risk-free rate - high lease rate - low storage cost - high convenience yield These conditions are most likely to push the forward curve toward **backwardation**.
Author: Manit Arora
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Question 187.5: Which of the following commodities is most likely to imply a forward curve in backwardation?
A
low riskfree rate, low lease rate, low storage cost, low convenience yield
B
high riskfree rate, low lease rate, high storage cost, low convenience yield
C
low riskfree rate, high lease rate, low storage cost, high convenience yield
D
high riskfree rate, high lease rate, high storage cost, high convenience yield
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