Answer-first summary for fast verification
Answer: Consumption asset (e.g., oil) with high storage cost and no convenience yield
Under the **cost of carry** model, the futures price reflects the spot price plus carrying costs such as financing and storage, minus any income or convenience yield. The **steepest contango** occurs when carrying costs are largest. - **C** has **high storage cost** and **no convenience yield**, so it produces the greatest positive cost of carry and thus the steepest contango. - **A** would have contango from financing costs, but no dividend yield does not make it steeper than a high-storage-cost commodity. - **B** has dividends, which reduce contango. - **D** has high convenience yield, which tends to reduce contango or even create backwardation. Therefore the correct answer is **C**.
Author: Manit Arora
Ultimate access to all questions.
Q-147.2 Normal versus inverted futures market
If the futures curve were to reflect only the cost of carry model and neither technical factors nor supply/demand (i.e., assume spot already impounds), which of the following commodities should exhibit the STEEPEST contango ("normal") futures market?
A
Investment asset (e.g., S&P 500) with no dividend yield
B
Investment asset (e.g., S&P 500) with high dividend yield
C
Consumption asset (e.g., oil) with high storage cost and no convenience yield
D
Consumption asset (e.g., oil) with no storage cost and high convenience yield
No comments yet.