question B on page 205, Curriculum Vol 5

I think the borrowing activity is left out in the table, which is an ingredient of the cash and carry arbitrage. There should be a borrowing of $3 at Time 0 to fund the buy order on the spot market. And a repayment of interest and principal totaling 3*exp (6%*0.25)=3.03135 at T= 3/12. In effect, the net cash flow at Time 0 is 0, and is 3.075-[3*exp(6%*0.25) + 0.03] = 0.01485 at Time = 3/12.


As a result, the annualized rate of return for this cash and carry arbitrage should be (1+0.0485)^(12/3) -1 = 6.07%.

Why not take the borrowing activities into account?

thkss!!!