As a contract approaches maturity,the spot price and forward price
A) Increase.
B) Diverge.
C) Maintain a fixed price differential.
D) Have a random relationship.
E) Converge.

Question

Quizplus · Accepted Answer

As the contract approaches maturity, the spot price and forward price tend to converge. This is because the closer the contract comes to expiration, the less uncertainty there is about the price at which the underlying asset will be bought or sold, which narrows the gap between the two prices.

As a Contract Approaches Maturity,the Spot Price and Forward Price