As time draws closer to contract expiration, futures contract prices can be expected to:
A) increase as the demand for delivery intensifies.
B) decrease as speculators resolve the uncertainty of prices.
C) move similarly to broad-based market indices, such as the S&P 500.
D)converge upon the spot price.

Question

Quizplus · Accepted Answer

As futures contracts approach their expiration, there is a tendency for futures prices to converge towards the spot price of the underlying asset. This is because as the contract expiration date approaches, the possibility of delivery becomes more likely, and traders will adjust prices to reflect the actual value of the asset at the time of delivery. Therefore, D is the correct answer. A, B, and C are incorrect because they do not reflect the typical price behavior of expiring futures contracts.

As Time Draws Closer to Contract Expiration, Futures Contract Prices