The spot price for delivery of home heating oil is $0.55 per gallon. The futures price for one year from now is $0.57. If the risk-free rate is 6% per year, what is the net convenience yield?

Question

Quizplus · Accepted Answer

The net convenience yield can be calculated using the formula: Futures Price = Spot Price * e^(r - c), where r is the risk-free rate and c is the net convenience yield. Rearranging gives c = r - ln(Futures Price / Spot Price). Substituting the given values: c = 0.06 - ln(0.57 / 0.55) = 0.0236.

The Spot Price for Delivery of Home Heating Oil Is