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We discussed the futures pricing formula F = SeRf t, where S is the price of the underlying asset (for instance a non-income investment as-
We discussed the futures pricing formula F = SeRf t, where S is the price of the underlying asset (for instance a non-income investment as- set). We also discussed the strategy to follow if F < SeRf t. Now assume that you are faced with a consumption asset with C the present value of storage costs. Discuss precisely what happens to the strategies when respectively a) F > (S + C)eRf t and b) F < (S + C)eRf t . What final result do you obtain?
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