An Eastern Australia Feed Barley futures is currently trading at $315 and the risk-free interest rate is 5% per annum, continuously compounded.

a) We observe the value of an eight-month European call on the futures with a strike price of $305 is $8. Is there an arbitrage opportunity? If so, please explain the strategy which yields immediate profit; show the cashflows at t=0 ONLY.

b) Having collected relevant market data, we obtained an estimate of the option's volatility as 36% per annum. Based on what we learned in class, how did we make this estimate? Cite both an advantage AND a disadvantage of the method.

c) Using a volatility of 36% per annum and the information from part (a), calculate the theoretical price of this call option