Answer-first summary for fast verification
Answer: I. only
Evaluate each factor using Hull’s cost-of-carry and risk-premium logic: - **I. Increase in storage cost** → increases carrying cost, so the futures price tends to **increase**. - **II. Increase in convenience yield** → reduces net cost of carry, so the futures price tends to **decrease**. - **III. Increase in systematic risk** → increases the required risk premium; for a commodity with positive beta, this tends to **lower** the futures price relative to expected spot. - **IV. Increase in idiosyncratic risk** → does **not** affect price under CAPM, because only systematic risk is priced. Therefore, only **I** tends to increase the futures price. Correct answer: **A**.
Author: Manit Arora
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Question-167.5. Consider a speculator who plans to take a long position in wheat futures while observing any of the following factor changes: I. An increase in the storage cost of wheat, II. An increase in wheat’s convenience yield, III. An increase in the systematic risk of wheat, IV. An increase in the idiosyncratic risk of wheat
According to Hull, which of these factor increases will tend to increase the futures price, F(0, X)?
A
I. only
B
I. and II. Only
C
I. and III. Only
D
I, III. and IV.
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