For commodities, the net convenience yield is generally not observable in the market. Consider Brent crude...

For commodities, the net convenience yield is generally not observable in the market. Consider Brent crude oil, which is relatively easy to transport globally. The 1-year forward price of Brent is $55.86. The spot price of Brent is $50.54. The risk-free interest rate is 3% (per year). Assuming that the net convenience yield is constant over this period; find the net convenience yield implied by these observations.

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Expert Solution

Forward Price =Spot Price*e^(Rate+Convenience Yield)
55.86=50.54*e^(3%+Convenience Yield)
Convenience Yield =ln(55.86/50.54)-3% =7.01%

jeff jeffy answered 2 years ago

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