What is the convenience yield

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Spot oil is $50/barrel. It costs $0.20 a month to store and insure oil (and it must be paid up front).

If the borrowing rate is 1%, how much should a 6 month oil future cost?

This is a two part question:

If the 6 month oil futures price is $55, is there an arbitrage available?

What would you do?

How much will you make?

What is this called?

Use the above information regarding spot oil. If the futures price is also $50, what is the convenience yield?

Reference no: EM131487512

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