Solution Library

Calculation Of Forward Price For Crude Oil


The current spot price of 1 barrel of crude oil is $120, the 1.75-year spot rate is 5% (c.c.), the (continuous flow of) storage costs of crude oil is 1% per year.

(a) In absence of arbitrage, what should be the forward price to trade crude oil in 1.75 years if crude oil was an investment asset?

(b) Assume crude oil is a consumption asset. Is there an arbitrage if the forward price to trade 1 barrel of crude oil in 1.75 years is $140? If so, describe an arbitrage strategy.

(c) What is the convenience yield if the true forward price to trade 1 barrel of crude oil in 1.75 years is $110?


The question belongs to Finance and it discusses about calculation of forward price for crude oil.

Total Word Count 140

Download Full Solution


  • HWA

    this is a very good website

  • HWA

    I have 50 questions for the same test your page is showing only 28

  • HWA

    hi can you please help or guide me to answer my assignments. thanks

  • HWA

    hi can anyone help or guide me to my assignments. thanks

  • HWA

  • HWA

    This solution is perfect ...thanks

  • HWA

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA

    Perfect bank of solution. 

  • HWA

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA

    works fine.