Explanation:
The basis percent is closest to zero when the futures price is closest to the spot price.
A one-day S&P 500 futures contract is most likely to be nearest to spot because:
By contrast:
Therefore, the correct answer is C.
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Question 143.3 Following Hull, let basis(t) = spot(0) - futures(t). Further, let basis percent(t) = basis(t)/spot(0); i.e., basis as a percentage of the spot price. Which of the following is most likely to have a basis percent(t) NEAREST to zero?
A
A six-month futures contract on corn in contango
B
A one-day futures contract on wheat in contango with high delivery (transportation) costs
C
A one-day futures contract on S&P 500 Index in contango
D
A six-month oil futures contract in backwardation and high convenience yield