Spot price of gold is $1,407.40/oz. The total interest rate on threemonth loans and deposits is 0.75%(i.e. $100 borrowed today would require a payment of $100.75 in three months).

a. Assuming no storage cost and no transaction cost, determine the noarbitrage price for a goldfutures contract maturing three months from now.

b. Suppose that the threemonth gold futures contract is actually traded at $1,420.20/oz.Determine if an arbitrage opportunity is present. If so, describe a trading strategy that takesadvantage of this arbitrage opportunity and calculate the profit of the strategy per contract.Make sure to clearly identify what position should be taken in the futures contract, whether theasset should be bought or sold, and how much cash will have to be borrowed or invested. Thecontract size is 100 oz.