Assume that the spot price of crude oil is $$100$ a barrel and the

annual interest rate equals $3\%.$ The cost of storing and insuring oil

for one year is $2\%.$ Answer the following questions:

$($a$)$ What is the price of the $1-$year forward contract for crude oil?

$($b$)$ What would an arbitrage do when the crude oil forward price is

$$102?$ How does this transaction differ from the decision made by

Needoil Corp to long crude oil forward contracts?