"Alternative Investments":Convenience yield

C is correct. In backwardation, futures prices are lower than spot prices, that is, the commodity forward curve is downward sloping. This scenario occurs when the convenience yield is high. Futures price ≈ Spot price (1 + r) + Storage costs – Convenience yield.

A is incorrect. Futures price ≈ Spot price (1 + r) + Storage costs – Convenience yield. Thus, high interest rates contribute to an upward sloping commodity forward curve.

B is incorrect. Futures price ≈ Spot price (1 + r) + Storage costs – Convenience yield. Thus, high storage costs contribute to an upward sloping commodity forward curve.

B is correct. Management fee: 1% of $112 million = $1.12 million

Incentive fee: 10% of ($12 million – $ 1.12 million) = $1.088 million

Fund value after fees: $112 million – $1.12 million – $1.088 million = $109.792 million

Investor return: ($109.792 million/$100 million) – 1 = 9.79%

C is incorrect. It ignores the fact that the incentive fee is calculated net of management fees.

Management fee: 1% of $112 million = $1.12 million.

Incentive fee: 10% of $12 million = $1.2 million.

Fund value after fees: $112 million – $1.12 million – $1.2 million = $109.68 million

Investor return: ($109.68 million / $100 million) - 1 = 9.68%

B is incorrect. It neglects the incentive fee.

Management fee: 1% of $112 million = $1.12 million

und value after fees: $112 million – $1.12 million = $110.88 million

Investor return: ($110.88 million/$100 million) – 1 = 10.88%

Introduction to Alternative Investments