In January 2009, the spot price of crude oil was $41.68 a barrel and the one-year futures price was $58.73 per barrel. The interest rate was 0.44%. Thus Ft =S 0 (1 +r f +storage costs -convenience...

In January 2009, the spot price of crude oil was $41.68 a barrel and the one-year futures price was $58.73 per barrel. The interest rate was 0.44%. Thus

Ft =S₀
(1 +r_f
+storage costs -convenience yield)

58.73 =41.68(1.0044 -net convenience yield)

So net convenience yield was negative, that is, net convenience yield = convenience yield - storage costs =- .405, or -40.5% over one year. Evidently the cost of holding of crude oil inventories was greater than the convenience yield provided by those inventories. Oil in 2009 was in ample supply and users had no worries that they would run short in the months ahead.

a. The Web sites of the major commodities exchanges provide futures prices. Calculate and plot  the annualized net convenience yield for a commodity of your choice. ( Note: You may need to use the futures price of a contract that is about to mature as your estimate of the current spot price.)

b. You can find swap rates for the U.S. dollar and the euro. Plot the current swap curves.

c. You can find spot and futures prices for a variety of equity indexes. Pick one and check whether it is fairly priced. You will need to do some detective work to find the dividend yield on the index and the interest rate.