In the absence of arbitrage opportunities, the forward contract price should be equal to the current price plus
A) contract price.
B) the cost of carry.
C) margin requirement.
D) the price discovery rate.
E) the convenience return.

Question

Quizplus · Accepted Answer

The cost of carry should be added to the current price to determine the forward contract price in the absence of arbitrage opportunities. The cost of carry includes storage costs, interest rates, and dividends. This ensures that the forward price reflects the expected future price of the underlying asset, taking into account the costs associated with holding the asset until the delivery date of the contract.

In the Absence of Arbitrage Opportunities, the Forward Contract Price