Explanation:
The EXCEPT choice is A.
Why A is false:
Why B, C, and D are true:
So the incorrect statement is A.
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Question 165.5. Each of the following is TRUE about the cost of carry approach (model) to pricing commodity forwards EXCEPT:
A. If the storage cost of a consumption commodity exceeds the riskfree rate, the forward curve must exhibit contango
B. Forward curve backwardation implies a convenience yield that is greater than the cost of carry (y > c)
C. The convenience yield is economically like a dividend and therefore like a negative storage cost
D. A non-dividend-paying stock has a cost of carry equal to the riskfree rate
A
If the storage cost of a consumption commodity exceeds the riskfree rate, the forward curve must exhibit contango
B
Forward curve backwardation implies a convenience yield that is greater than the cost of carry (y > c)
C
The convenience yield is economically like a dividend and therefore like a negative storage cost
D
A non-dividend-paying stock has a cost of carry equal to the riskfree rate