Consider a storable commodity like grain that has inventory


Consider a storable commodity like grain that has inventory value. We defined the convenience yield as an equilibrium yield to holding the commodity that would in effect “violate” a no arbitrage condition. The current date is April and current spot on the commodity is $1.96. A May futures contract is trading at $1.95, the risk free rate is 9%, and the storage costs are 1% of commodity price. Does this contract have a convenience yield present? If so, calculate it in percentage terms (Hint: y = [ln(spot/futures) + (r+u)T]/T).

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Financial Management: Consider a storable commodity like grain that has inventory
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