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Two Assets AA And BB Have the Same Spot Price Today AA Is Expected to Grow at 10% Over the Next Year

Question 12

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Two assets AA and BB have the same spot price today. The price of asset AA is expected to grow at 10% over the next year and that of asset BB is expected to grow at 10% also. Asset AA has a standard deviation of returns of 10% over the year and asset BB has standard deviation of 15%. Which of the following is true if there are no holding costs or benefits?


A) Asset AA 's one-year forward price will be less than that of asset BB .
B) Asset AA 's one-year forward price will be greater than that of asset AA .
C) Asset AA 's one-year forward price will be equal to that of asset BB .
D) Any of the above may be true.

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