is equal to the risk-free rate less the lease rate. The lease rate, 
, is income earned if the commodity is loaned out. Thus, an increase in lease rate, 
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Jill Mahoney, CFA, has several long commodity forward positions for her clients. The underlying commodities have active lease markets. Her model predicts that the lease rates on the commodities underlying her forward contracts will increase in the near future. If the other variables such as the expected present and future spot price remain unchanged, Mahoney would expect the value of the long forward positions to: A. increase. B. decrease. C. be unaffected. |