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The current December 2020 copper futures contract has a futuresprice of 3.0620 per pound. The...

The current December 2020 copper futures contract has a futures price of 3.0620 per pound. The current December 2021 copper futures contract has a futures price of 3.0895 per pound. T-Bill rate is 0.13% per year. Storage costs about $.05 per pound per year. What is the implied convenience value from December 2020 to December 2021?

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Expert Solution

The implied convenience value is computed as shown below:

current dec 2020 price x (1 + t-bill rate + storage cost - convenience value) = dec 2021 price

3.0620 x (1 + 0.0013 + 0.05 - convenience value) = 3.0895

3.0620 x (1.0513 - convenience value) = 3.0895

3.2190806 - 3.0620 convenience value = 3.0895

convenience value = 0.0423 Approximately

jeff jeffy answered 2 years ago
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