2) Suppose that the risk - free interest rate is 10% per annum withcontinuous compounding and that the dividend yield on a stock index is 4%per annum. The index stands at 320, and the futures price for a contractdeliverable in four months is 325 .a) What arbitrage opportunities does this create?b) Describe the whole process of arbitrage.
2) Suppose that the risk - free interest rate is 10% per annum withcontinuous compounding and that the dividend yield on a stock index is 4%per annum. The index stands at 320, and the futures price for a contractdeliverable in four months is 325 .a) What arbitrage opportunities does this create?b) Describe the whole process of arbitrage.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
2) Suppose that the risk - free interest rate is 10% per annum with
continuous compounding and that the dividend yield on a stock index is 4%
per annum. The index stands at 320, and the futures price for a contract
deliverable in four months is 325 .
a) What arbitrage opportunities does this create?
b) Describe the whole process of arbitrage.
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