Two assets $A$ and $B$ have the same spot price today.Asset $A$ is expected to grow at 10% over the year and asset $B$ is expected to grow at 12%.Which of the following is true if there are no holding costs or benefits for either asset?
A)Asset $A$
's one-year forward price will be less than that of asset
$B$

B)Asset $A$
's one-year forward price will be greater than that of asset
$A$

C)Asset $A$
's one-year forward price will be equal to that of asset
$B$

D)None of the above can be ascertained with certainty,as it also depends on other factors.

Question

Two assets $A$ and $B$ have the same spot price today.Asset $A$ is expected to grow at 10% over the year and asset $B$ is expected to grow at 12%.Which of the following is true if there are no holding costs or benefits for either asset?
A)Asset $A$
's one-year forward price will be less than that of asset
 $B$

B)Asset $A$
's one-year forward price will be greater than that of asset
 $A$

C)Asset $A$
's one-year forward price will be equal to that of asset
 $B$

D)None of the above can be ascertained with certainty,as it also depends on other factors.

Quizplus · Accepted Answer

The forward price of an asset is the spot price multiplied by the growth factor. Since both assets have the same spot price and asset B is expected to grow at a higher rate, the forward price of asset B will be higher than that of asset A.

Two Assets AAA And BBB Have the Same Spot Price Today AAA Is Expected to Grow at 10% Over the Year and Today.Asset

Two Assets $A$ And $B$ Have the Same Spot Price Today $A$ Is Expected to Grow at 10% Over the Year and Today.Asset