Let the arbitrage-free 3-month futures price for wheat be denoted by Ft. Suppose it costs c$ to

Question:

Let the arbitrage-free 3-month futures price for wheat be denoted by Ft. Suppose it costs c$ to store 1 ton of wheat for 12 months and s$ per year to insure the same quantity. The (simple) interest rate applicable to traders of spotwheat is r%. Finally assume that the wheat has no convenience yield.
(a) Obtain a formula for Ft.
(b) Let the Ft = 1500, r = 5%, s = $100, c = $150 and the spot price of wheat be St = 1470. Is this Ft arbitrage-free? How would you form an arbitrage Assuming that all the parameters of the problem remain the same, what would be the profit or loss of an arbitrage at expiration?
Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...