Question

As the time to delivery on a futures contract converges to zero, which of the following statements are true? Check all that apply.

Select one or more:

a. The spot price has to exceed the futures price

b. If the futures price were larger than the spot price of the underlying, then an investor could make a riskless profit by selling the underlying and buying the futures contract

c. If the spot price of the underlying were larger than the futures price, then an investor could make a riskless profit by selling the futures contract and buying the underlying

d. By the arbitrage principle, the futures price and the spot price of the underlying have to converge

Answer 1

Solution :- The Correct Answer is (D) that By the arbitrage principle, the futures price and the spot price of the underlying have to converge .

Option (B) is incorrect as if future price large than we need to sell futures not buying

Option (C) is incorrect as when Future price smaller than we need to buying futures not selling .

Option (A) is incorrect as  The spot price must not exceed the futures price .

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