Problem 2B asks us to calculate rate of return on cash and carry w/ storage strategy. So I went ahead and set up the arbitrage tableau. And then the obvious problem arose: at t = 0 the cash flow nets to zero. So how do you calculate the return? I peek at the back and see that the solution conveniently omits borrowing to support cash and carry. Is that legit and why? In the similar problem 1, the solution does consider borrowing and gives the return in dollar numbers, which makes sense. And then I have a very very very embarrassing question to ask about something very simple. In problem 2C, I just cannot get my future values of storage same as in the solution (albeit the difference is small, but still). I am missing something extremely obvious but cannot get it. Can some kind soul lead this blind idiot?
the borrowed money is your cost for starting cash-and-carry. isn’t it? so, zero CF doesn’t mean you don’t have S(0) dollars short in your bank account. make sense?