Question

True or False

1.The cost of carry includes the interest lost on the funds tied up in the asset stored.​

2.If the exercise price equals the futures price, a put on the futures will have the same price as a call on the futures.​

3. A futures contract can have negative value.​

Answer 1

1. True.The cost of carry refers to costs associated with the carrying value of an investment. These costs include:

Interest cost on bonds+interest expense on margin accounts+ interest on loans used to make an investment+ any storage costs involved in holding a physical asset( it includes cost of physical asset storage, Insurance and any potential losses from obsolescence).

2.True. The case is called " at the money" option.

Where exercise price is equal to strike price.

3.False. A future contract can only have positive value..The contracts themselves are standardized and reflect positive value based on price movements of the underlying.