The current spot price of one pound (lb) of copper is $3.75, the 3.5-year spot rate is 2% (semi-annual compounding), the (continuous flow of) storage costs of copper is 3% per year.

(a). In absence of arbitrage, what should be the forward price to trade copper in 3.5 years if copper was an investment asset?

(b). Since copper is a consumption asset, it might be impossible or undesirable to short sell it in the spot market. Does the result/formula in question a) still hold? Explain carefully.

(c). Assume copper is a consumption asset. Is there an arbitrage if the forward price to trade copper in 3.5 years is $5? If so, describe an arbitrage strategy.

(d). What is the convenience yield if the true forward price to trade copper in 3.5 years is $3.78?