The spot price of corn is $8.00/bu., and the futures price of the July contract is $8.25/bu. This contract expires in three months. Suppose that storage costs for corn for 3 months are $0.15/bu., payable in advance. The continuously compounded 3-month risk-free rate is 1% per year. Is there an arbitrage opportunity? If so, what is the arbitrage strategy? (Assume that the strategy is designed so that net cash flows today are zero.) In your analysis, treat corn as a true consumption commodity. Hint: first calculate the no-arbitrage futures price.

Group of answer choices

Take a long position in July corn futures, sell yellow corn short in the spot market today, save on storage costs, and invest sales proceeds at the risk-free rate until July.

Take a short position in July corn futures, buy yellow corn in the spot market today, arrange to pay storage costs, and borrow at the risk-free rate until July.

No arbitrage opportunity exists.

Take a long position in July corn futures, buy yellow corn in the spot market today, arrange to pay storage costs, and borrow at the risk-free rate until July.

Take a short position in July corn futures, sell yellow corn short in the spot market today, save on storage costs, and invest sales proceeds at the risk-free rate until July.