Question

Which of the following factors does not affect the futures price?

a. The benefit of holding the underlying asset
b. Dividends or interest paid by the underlying asset
c. Whether the investor is risk neutral, risk averse or risk seeking
d. The costs of storing the underlying asset

Answer 1

The future price of an asset is not affected by whether the investor is risk neutral, risk averse, or risk seeking; it is influenced by factors such as the benefits of holding the asset, dividends, and storage costs.

Step-by-step explanation:

Among the factors listed, c. Whether the investor is risk neutral, risk averse or risk seeking does not affect the futures price of an asset. Futures prices are typically influenced by the costs associated with holding the underlying asset including the benefit of holding the underlying asset, dividends or interest that the asset may yield, and the costs of storing the underlying asset. However, the risk preferences of the investors do not directly impact the futures price. Instead, it affects the individual investor's decision to enter into a futures contract based on their personal risk assessment and desired return. Futures prices are determined by objective market factors such as supply and demand rather than subjective investor attitudes towards risk.