Question：

For a forward contract with a value of zero, a situation where the spot price is above the forward  price is best explained by high: 
A. convenience yield. 
B. storage costs. 
C. interest rates. 

Answer = A 
If the convenience yield is high, holding the underlying confers large benefits, thus the spot price can  exceed the forward price for a forward contract with a value of zero. Based on the  formula and an initial value Vt(0) of zero, large  benefits  explain why the spot price can exceed the forward price.

CFA Level 1
“Basics of Derivative Pricing and Valuation,” Don M. Chance, CFA
Section 2.2.5

 

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