What is the convenience yield

Assignment Help Finance Basics

Reference no: EM132466410

Problem: Gold sells at $1,209.10 per ounce. It has a convenience yield denoted by y and a storage cost u = 4% (per annum continuously compounded). The risk-free interest rate is 3% per annum continuously compounded. The 6-month futures price is $1,243.7441. An Alternative Investments fund takes 50 long positions in the 1- year futures contract on gold today. Each contract is on 100 ounces.

Required:

Question 1: What is the convenience yield?

Question 2: Suppose that the hedge fund closes out its positions 8 months from now and makes a total gain of $75,000. What is the spot price of gold 8 months from now if there is no arbitrage?

Reference no: EM132466410

Questions Cloud

About the advantages and disadvantages of the EHR : The student will provide an opinion about the advantages and disadvantages of the EHR

What is the interest rate prevailing in the uk : What is the interest rate prevailing in the UK? What is the 6-month futures exchange rate?

Describe the experimental procedures in brief : We are in a need of Research project paper and PPT on the topic Access Restriction in the cloud is secure than the operating system with the proper APA format.

The iceberg analogy : Using the iceberg analogy, what are the hidden and the displayed pieces of your organization's culture from an OD perspective?

What is the convenience yield : What is the convenience yield? Suppose that the hedge fund closes out its positions 8 months from now and makes a total gain of $75,000.

Evaluate state and federal policies in child welfare : Discuss of Agency-GA Mentor is a therapeutic foster care agency that provides therapeutic foster care services to youth between the ages of 0-18.

What is the importance of selecting target market : Marketing plays an essential role in managing and growing a firm. What is a target market? What is the importance of selecting a target market?

What is the theoretical 3-month futures price : The S&P 500 spot is 2,271.31 and it is expected to pay a dividend yield of 3%. The riskfree rate is 4% per annum continuously compounded.

How could smaller companies deal with erm for dedicated cro : Should a Chief Risk Officer (CRO) be appointed? If so, to whom should he/she report to? How could smaller companies without the resources for a dedicated CRO.

User Account

All Pages