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Financial Derivatives: Dwight is the financial manager of a firm and observes that...

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Finance

Financial Derivatives:

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Dwight is the financial manager of a firm and observes that a Futures contract written on a commodity is trading at $113, and has six months to maturity. The underlying commodity is currently selling for $110 but accrues storage costs at a rate of 2%. The risk-free rate is 5% per annum with continuous compounding for all maturities. Is there an arbitrage opportunity and, if yes, how should Dwight exploit it

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