I’m sorry in advance that I can’t tell you which mock this is from since my papers are all jumbled.
Either way, on Q # 28 of either 2011 or 2012, it asks a question about spot prices, futures prices and risk premiums.
According to the answer, the futures price = spot price - premium. Stated differently, futures + premium = spot price.
Wouldn’t that mean that spot price> futures price?
Isn’t that backwardation? I thought the normal state is for contango ~ i.e. when futures>spot price.
Please enlighten me on this topic… i’m getting so confused!