ARBITRAGE IN OUR CASE Assume that the interest rates for 2 years out are flat at 9%. If the one- year futures is trading in the market for $9,500, what will you do? If the one-year future is $9500 there is an arbitrage opportunity since the assed is undervalued according to our previous calculations which price the one-year future at $10,600. To take advantage of these mispriced futures we must buy the one-year future contract that's $9500 and short sell the index future for $10000. You will invest the $10000 you gain from the short sale at 9%. You will have $10900 by the end of the year, and you will have to buy the $9500 future contract. Value of arbitrage= $10900 (from investment)- $9500 (future) = $1400 after 1 year

Please give me answer fast. I will rate for sure.

Please no written by hand and no image 2. A forward contract for 4 months is entered into when a stock index is at 1000. If the risk free interest rate is 3% per year (with continuous compounding) and the dividend yield on the index is 2% per year, what is the futures price? After 1 month the index price is 980, what is the value of the futures agreement assuming the risk free rate with continuous compounding is now 5% (but the original dividend rate remains 2%) and the contract price is equal to $50 times the index value?

A non-dividend paying asset is current priced at $25 and the risk-free interest rate is 8% per annum. Today, you enter into a six-month futures contract to buy a unit of this asset. Three months from now the underlying price has fallen to $20 (but note that the interest rate has not moved). Which of the answers below is closest to the fall in the futures price? Use discrete discounting. a. $4.50 b. $6.50 c. $7.50 d. $5.50