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

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.

Quizplus · Accepted Answer

The forward price of an asset that has 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 there are no holding costs or benefits, so the forward price should reflect the risk-free rate of return.

The Forward Price of an Asset That Has No Holding