Assume that the storage cost of copper is 3% per year, the current spot price is $7600/ton, the risk-free rate is 2%, and the convenience yield is 0.5%. Make appropriate assumptions if necessary.

a) Define the storage cost and convenience yield for a commodity. [5 marks]

b) Calculate the theoretical price of a six-month future contract. [5 marks]

c) If the 6-month future price is $7800/tonne, assess whether there is an arbitrage opportunity and describe the arbitrage trade. [5 marks]