Crude oil has a storage cost equivalent to 8 per cent per year for all maturities. The spot price of crude oil is $100 per barrel and the 6 and 12 months prices for futures contracts on crude oil are $97.53 and $101, respectively. The continuously compounded interest rate for 6 and 12 months is 2 per cent per year? What are the 6 and 12 month convenience yields and the lease rates on crude oil, expressed as an interest rate?

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The convenience yield is the benefit of holding the physical asset instead of a futures contract and ... View the full answer