If there is a convenience yield, then the following is true of the forward price:
A) The forward price is higher than it would be if there were no convenience yield.
B) The bid price may be higher than the ask price on the forward.
C) The forward price does not depend on the convenience yield.
D) The forward price is lower than it would be with no convenience yield.

Question

Quizplus · Accepted Answer

The convenience yield is the benefit or value of holding an underlying physical good rather than a contract or derivative of that good. It effectively acts as a form of dividend for commodities. When there is a convenience yield, the forward price is lower than it would be if there were no convenience yield. This is because the holder of the physical commodity receives benefits that are not available to the holder of the forward contract, which reduces the cost of carry and thus lowers the forward price.

If There Is a Convenience Yield, Then the Following Is