On January 1st, 2021, an investor enters into a 9-month forward contract on an asset. In February, April, June, and September, dividends are paid on the asset at a rate of 3%. In other months, dividends are paid at a rate of 2%. All dividend yields are expressed in semiannual compounding. The risk-free rate of interest over the period is 8% per annum with continuous compounding and the asset is worth $45.00 at contract initiation.What is the no-arbitrage price of the forward contract?  b. What is the Convenience Yield and what does a higher or lower convenience yield reflect? c. Coming out of the COVID-19 pandemic and considering the Russia-Ukraine war, would you expect the convenience yield to lead to a normal or inverted market for oil futures prices? Explain

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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a. On January 1st, 2021, an investor enters into a 9-month forward contract on an asset. In February,
April, June, and September, dividends are paid on the asset at a rate of 3%. In other months,
dividends are paid at a rate of 2%. All dividend yields are expressed in semiannual compounding.
The risk-free rate of interest over the period is 8% per annum with continuous compounding and
the asset is worth $45.00 at contract initiation.What is the no-arbitrage price of the forward contract? 


b. What is the Convenience Yield and what does a higher or lower convenience yield reflect?


c. Coming out of the COVID-19 pandemic and considering the Russia-Ukraine war, would you
expect the convenience yield to lead to a normal or inverted market for oil futures prices?
Explain 

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