The forward price of an asset that has no holding costs or benefits is equal to
A)The compounded price of the spot asset,where the compounding takes place at the risk-free rate.
B)The compounded price of the spot asset,where the compounding takes place at a rate equal to the expected return on the asset.
C)The market's expectation of the future spot price of the asset.
D)Its current spot price.

Question

Quizplus · Accepted Answer

The forward price of an asset with no holding costs or benefits is equal to the compounded price of the spot asset, where the compounding takes place at the risk-free rate. This is because the forward price reflects the cost of carrying the asset forward in time, which, in the absence of holding costs or benefits, is determined by the opportunity cost of not investing at the risk-free rate.

The Forward Price of an Asset That Has No Holding