Investments, tenth edition

    The non–interest net carrying costs,  c,  play the role of a “negative dividend” in this context.  

    9.   When commodities are not stored for investment purposes, the correct futures price must be 

determined using general risk–return principles. In this event,   

F

0

5 E(P

T

) 

¢

1

1 r

f

1

1 k

≤

T

 

    The equilibrium (risk–return) and the no-arbitrage predictions of the proper futures price are 

consistent with one another for stored commodities.    

 Related Web sites 

for this chapter are 

available at   www.

mhhe.com/bkm   

   hedging  

  interest rate parity relationship  

  covered  interest  arbitrage 

relationship  

  hedge  ratio  

  index  arbitrage  

  program  trading  

  market-neutral  bet  

  price value of a basis point  

  cross-hedging  

  foreign  exchange  swap  

  interest  rate  swap  

  notional  principal  

  credit  default  swap