Question: The risk - free rate ( SOFR ) is 3 % per annum ( continuously compounded ) , storage costs are $ 0 . 2

The risk-free rate (SOFR) is 3% per annum (continuously compounded), storage costs are $0.25 per unit per month (paid continuously), and the commodity yields 2% per annum continuously. Compute the theoretical 3-month futures price. If the market price is $77, propose an arbitrage strategy.

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