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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