Answered

Discover the answers you need at Westonci.ca, a dynamic Q&A platform where knowledge is shared freely by a community of experts. Get the answers you need quickly and accurately from a dedicated community of experts on our Q&A platform. Discover in-depth answers to your questions from a wide network of professionals on our user-friendly Q&A platform.

On July 5, a stock index futures contract was at 394.85. The index was at 392.54, the risk free rate was 2.83 percent, the dividend yield was 2.08 percent, and the contract expired on September 20. Determine whether an arbitrage opportunity was available and explain what transactions were executed.

Sagot :

Solution :

Given :

The stock index contracts at = $ 394.85

Index = $ 392.54

Risk fee rate =  2.83 %

Dividend = 2.08 %

Now take long position on the index at $ 392.54 per share

After 75 days, they have to pay $ 392.54 + 392.54 x 2.83 x 75/365

                                                   = $ 394.823

Take s short position on the stock index futures contract on $ 394.85 per share.

Dividends received = $ 392.54 x 2.08%

                                 = $ 8.164

Therefore, there is an  arbitrage opportunity.

Thank you for visiting. Our goal is to provide the most accurate answers for all your informational needs. Come back soon. Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. Get the answers you need at Westonci.ca. Stay informed by returning for our latest expert advice.