Exhibit 21.10
Use the Information Below for the Following Problem(S)
The S&P 500 stock index is at 1300. The annualized interest rate is 4.0% and the annualized dividend is 2%. You are currently considering purchasing a 2-month futures contract for your portfolio.
-Refer to Exhibit 21.10.If the futures contract was currently available for 1350,calculate the arbitrage profit.
A) $8.33
B) $28.45
C) $45.67
D) $50.00
E) $54.33

Question

Quizplus · Accepted Answer

You should short futures at $1350.Borrow at the rate of 0.6667% (4%/(360/60))to buy the index at $1300.Hold for 60 days,then collect dividends and repay loan.
The net profit = 1350 - 1300 - 1300(.006667 - .003333)= $45.67

Exhibit 21.10 Use the Information Below for the Following Problem(S)