Suppose it is currently July.The September futures price is $60 and the December futures price is $68.What does the spread of $8 represent?
A)the cost of carry from July to September
B)the expected risk premium from July to September
C)the cost of carry from September to December
D)the expected risk premium from September to December
E)none of the above

Question

Quizplus · Accepted Answer

The spread of $8 represents the difference between the September futures price and the December futures price. Since the December price is higher than the September price, this indicates that there is a cost of carry from September to December, which is represented by the $8 spread. The cost of carry includes things like storage costs, financing costs, and insurance costs associated with holding the underlying asset. The spread does not represent a risk premium, as there is no indication of increased risk associated with either futures contract.

Suppose It Is Currently July