Answer to Question #11537 in Finance for Narxoznik

Question

4. Answer the following questions based on the following quotation, which is October 1 price quotation on light sweet crude oil (source: New York Mercantile Exchange). (Each part is worth 5 points, 25 points total)




Last Open High Open Low High Low Most Recent Change
Nov 2007 80.25 81.55 81.45 82.02 79.45 80.24s 0.01
Dec 2007 79.28 80.35 80.3 80.8 78.5 79.28s 0.00
Jan 2008 78.44 n/a 79.58 79.9 77.75 78.50s -0.06
Feb 2008 77.68 n/a 78.85 78.86 77.22 77.87s -0.19
Mar 2008 77.32 n/a 78.25 78.62 76.75 77.34s -0.02
April 2008 76.83 n/a 77.61 77.61 76.28 76.86s -0.03


(a) Here the futures price is lower the greater the time to expiration; what does this imply about the convenience yield of oil? Specifically, is it greater than the cost of carrying oil? (Hint: carry cost model).