The price of two-month futures contract of oil is 121000 (per 1000 kg) and the spot price is 120000 (per 1000 kg). If the investor can continuously borrow at 8.65 percent per annum compounded continuously and U = 0.25 (percent per 1000 kg). Find out the theoretical price based on cash and carry/reverse cash and carry model. Also find out the convenience yield in absolute and percentage term.

Algebra and Trigonometry (6th Edition)
6th Edition
ISBN:9780134463216
Author:Robert F. Blitzer
Publisher:Robert F. Blitzer
ChapterP: Prerequisites: Fundamental Concepts Of Algebra
Section: Chapter Questions
Problem 1MCCP: In Exercises 1-25, simplify the given expression or perform the indicated operation (and simplify,...
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The price of two-month futures contract of oil is 121000 (per 1000 kg) and the spot price is 120000 (per 1000 kg). If the investor can continuously borrow at 8.65 percent per annum compounded continuously and U = 0.25 (percent per 1000 kg). Find out the theoretical price based on cash and carry/reverse cash and carry model. Also find out the convenience yield in absolute and percentage term.    

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