If the net cost of carry of an asset is positive, then the price of a forward contract on that asset is most likely:
A.) lower than if the net cost of carry was zero.
B.) the same as if the net cost of carry was zero.
C.) higher than if the net cost of carry was zero.
Sir, the answer of this question in the book was also A. This question came in the candidate resource and as discussed in the class, the answer should be C as the price of the future would be higher if the net cost of carry is positive in comparison if the net cost of carry was zero. But after choosing the answer C, it was incorrect and it showed A is the correct answer with the same explanation given in the book.
Kindly guide please.
You’re absolutely correct , the author of derivatives defines NCC as CY – SC . Hence, a is the answer .
Okay.
But sir in the class gave the formula as :-
Net Cost of Carry = Funding Cost + Storage Cost – Monetary Benefit – Convenience Yield
So there was confusion.
Even in the class we were stumbled upon the same question and sir said there was misprinting in the answer and said the answer is C and not A
As per the CFA author net cost of carry is given as (benefit-cost) so that’s why the answer of this question is option A so do check in the curriculum and and correct it in your notes as well because you have to answer as per the explanation given by the author itself.