Financial Risk Manager Part 1

Ultimate access to all questions.

Explanation:

Compute the expected return on corn using CAPM:

k = r_f + \beta(E[R_m]-r_f) = 4\% + 0.40(9\%-4\%) = 4\% + 2\% = 6\%

With a 2% annual storage cost and a 6-month horizon, the forward price from cost of carry is:

F(0,0.5) = 7.00 \times e^{(0.04+0.02)\times 0.5} = 7.00e^{0.03} \approx 7.212

The expected future spot price, using the expected return of 6%, is:

E[S(0.5)] = 7.00 \times e^{0.06\times 0.5} = 7.00e^{0.03} \approx 7.212

Expected gain on a short futures position is approximately:

F(0,0.5) - E[S(0.5)] \approx 0

So there is no expected gain/loss.

Correct answer: C.

Explanation:

Compute the expected return on corn using CAPM:

k = r_f + \beta(E[R_m]-r_f) = 4\% + 0.40(9\%-4\%) = 4\% + 2\% = 6\%

With a 2% annual storage cost and a 6-month horizon, the forward price from cost of carry is:

F(0,0.5) = 7.00 \times e^{(0.04+0.02)\times 0.5} = 7.00e^{0.03} \approx 7.212

The expected future spot price, using the expected return of 6%, is:

E[S(0.5)] = 7.00 \times e^{0.06\times 0.5} = 7.00e^{0.03} \approx 7.212

Expected gain on a short futures position is approximately:

F(0,0.5) - E[S(0.5)] \approx 0

So there is no expected gain/loss.

Correct answer: C.

Comments (0)

No comments yet.

Exam-Like

Community

MManit

Last updated: April 18, 2026 at 11:32

Loss of $0.07 per bushel

40.0%

Loss of $0.02

30.0%

No expected gain/loss

20.0%

Gain of $0.05

10.0%