The spot price of oil is $54 per barrel and the the storage costs per barrel are a constant proportion, 2%, of the spot price. The risk-free interest rate is 5% per annum continuously compounded. If the one year futures price of oil is $55, estimate the convenience yield associated with holding oil.

Current price of oil ($/bbl) $54.00

Storage costs (%/year) 2%

Risk free rate (per annum) 5%

time to maturity of contract (months) 12

Futures Price of oil ($/bbl) $55.00

Answer rating: 100% (QA)

A Blank Equation Spot price is the price at which you buy an asset that pays no dividends or interes... View the full answer