Explanation:
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.
Therefore the correct answer is C.
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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