Chapter 5, Determination of forward and future price from the book, options, futures and other derivatives by John C. Hull.

You are provided the following information.

Current price of wheat = $19,000 for 5000 bushels

Riskless rate = 10 % (annualized)

Cost of storage = $200 a year for 5000 bushels

One-year futures contract price = $20,400 (for a contract for 5000 bushels)

a. What is F0 (the theoretical price)?

b. How would you arbitrage the difference between F and F0? (Specify what you do now and at expiration and what your arbitrage profits will be.)

c. If you can sell short (Cost $100 for 5000 bushels) and cannot claim any of the storage cost for yourself on short sales, at what rate would you have to be able to lend for this arbitrage to be feasible?