Question #14

Reading: Reading 30 Pricing and Valuation of Forward Commitments

PDF File: Reading 30 Pricing and Valuation of Forward Commitments.pdf

Page: 6

Status: Unattempted

Part of Context Group: Q14-16 First in Group
Shared Context
- How will the price of the one-year stock index future perform over the next 12 months? A) The futures price will converge to the future spot index price, with the basis reducing to zero. B) The value will move approximately in line with the spot index price, with a fairly constant basis. C) The futures price will move approximately in line with the spot index price, though its actual level at the end of the year will depend more on supply and demand than on the spot price.
Question
Comment 1 is best described as:
Answer Choices:
A. correct
Explanation
The value of a futures contract will reset to zero after marking-to-market.
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