Suppose that the risk-free interest rate is 10% per annum with continuous compounding and that the dividend yield on a stock index is 3% per annum. The index is standing at 395, and the futures price for a contract deliverable in three months is 404.
What arbitrage opportunities does this create?

See Below

Explanation:

We can use the future price formula here, which is:

Where

F is the theoretical future price

P is the present index standing

r_f is the risk free rate

d_y is the dividend yield

n is the number of months of the futures deliverable

Now,

given

P = 395

r_f = 0.1

d_y = 0.03

n = 3

Substituting, we get:

Actual future price is 404. The index future price is higher. So the strategy would be to sell the futures contracts. Long the shares underlying the index.

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

your welcome leave a rate and a < 3

answer; ///decision making under risk;