Describe the transactions necessary

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Joan believes she has identified an arbitrage opportunity for a commodity as indicated by the following information:

Spot price for the commodity: $ 120

Futures price for the commodity: $ 125

Interest rate for 1 year: 8%

a) Describe the transactions necessary to take advantage of this specific arbitrage opportunity.

b) Calculate the arbitrage profit.

c) Joan is also seeking a Futures contract on cement; explain to Joan why there is no market offering a futures contract on cement.

Interest and inflation rates are per annum unless stated otherwise. Advised to work to 4 decimal places if necessary (could you please write the references - what helped you arrive at the conclusion and the results)

Reference no: EM133061525

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