Suppose the price of oil is $22.80 per barrel today and the 90-day forward price, 

originated today, is $22.00 per barrel.

A. What can we say about the relationship between the 90-day risk-free rate, r, and

the yield associated with oil? What economic principles allow you to make your

conclusion?

B. Suppose the interest rate is 16% per year and the yield on oil is 24% per year.

Does an arbitrage opportunity exist? If so, how would you exploit it? Show

steps.

C. Other than mispricing, what condition or conditions must exist in order to actually

take advantage of arbitrage opportunities.