Question

The S&P 500 stock index is at 1,100. The annualized interest rate is 3.5 percent, and...

The S&P 500 stock index is at 1,100. The annualized interest rate is 3.5 percent, and the annualized dividend is 2 percent.

Refer to Exhibit 15.9. If the futures contract was currently available for 1,250, calculate the arbitrage profit.

a. -$133.41
b. $147.25
c. $133.41
d. $0
e. -$147.25
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Given,

Stock index = 1100

Annual interest rate = 3.5% or 0.035

Annual dividend rate = 2% or 0.02

Futures price = $1250

Solution :-

60 day interest rate = 0.035 x 60/360 = 0.0058333333

60 day dividend rate = 0.02 x 60/360 = 0.0033333333

Now,

Arbitrage profit = Futures price - stock index - stock index (60 day interest rate - 60 day dividend rate)

= $1250 - $1100 - $1100 (0.0058333333 - 0.0033333333)

= $1250 - $1100 - $1100 (0.0025)

= $1250 - $1100 - $2.75 = $147.25

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You have the following market data. The S&P 500 market index currently is 94.87. The annualized,...
You have the following market data. The S&P 500 market index currently is 94.87. The annualized, continuously compounded dividend yield on this index is 3.71%. The futures contract on this index has an index multiplier of 100. The annualized, continuously compounded risk-free rate is 3.41%. The index futures contract that expires in 5 months has a futures price of 80.32. What is the total net profit if you execute the arbitrage strategy with one futures contract? Do not round values...
The current level of the S&P 500 is 3000. The dividend yield on the S&P 500...
The current level of the S&P 500 is 3000. The dividend yield on the S&P 500 is 2%. The risk-free interest rate is 3%. What should be the fair price of a one-year maturity futures contract? - Now assume that the futures contract is also traded for 3000. Is contract over or underpriced? - Construct arbitrage portfolio for taking advantage of such price deviation. (refer to Chapter 17 slides and our in class work posted on Canvas) - Discuss whether...
The risk-free rate is 5% and the dividend yield on the S&P 500 index is 2%....
The risk-free rate is 5% and the dividend yield on the S&P 500 index is 2%. Which of the following is correct when a futures option on the index is being valued? The futures price of the S&P 500 is treated like a stock paying a dividend yield of 5%. The futures price of the S&P 500 is treated like a stock paying a dividend yield of 2%. The futures price of the S&P 500 is treated like a stock...
A stock index currently has a spot price of $1,100. The risk-free rate is 9%, and...
A stock index currently has a spot price of $1,100. The risk-free rate is 9%, and the index does not pay dividends. You observe that the 3-month forward price is $990. What arbitrage strategy would you undertake? a. Sell a forward contract, borrow $1,100, and buy the stock index b. Sell a forward contract, lend $1,100, and short-sell the stock index c.Sell a forward contract, borrow $1,100, and short-sell the stock index d. Buy a forward contract, borrow $1,100, and...
Suppose the value of the S&P 500 Stock Index is currently $1,750. If the one-year T-bill...
Suppose the value of the S&P 500 Stock Index is currently $1,750. If the one-year T-bill rate is 5.3% and the expected dividend yield on the S&P 500 is 4.6%. a. What should the one-year maturity futures price be? (Do not round intermediate calculations.) calculate Futures price $ b. What would the one-year maturity futures price be, if the T-bill rate is less than the dividend yield, for example, 3.6%? (Do not round intermediate calculations.)calculate Futures price $
The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate...
The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate of 1% and a continuously compounding dividend yield of 2%, what will be the fair forward price for the index at 1-year maturity? Round to integer. The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate of 1% and a continuously compounding dividend yield of 2%, what will be the fair forward price for the index at 5-year...
On January 1, you sell one April S&P 500 Index futures contract at a futures price...
On January 1, you sell one April S&P 500 Index futures contract at a futures price of 2,300. If the April futures price is 2,400 on February 1, your profit would be __________ if you close your position. (The contract multiplier is 250.) A) $12,500                        B)  -$25,000                 C)  $25,000                   D)  -$12,500 The current level of the S&P 500 index is 2,350. The dividend yield on the S&P 500 is 2%. The risk-free interest rate is 5%with continuous compounding. The futures price quote for a contract on...
The current level of the S&P 500 index is 2,250. The dividend yield on the S&P...
The current level of the S&P 500 index is 2,250. The dividend yield on the S&P 500 is 3%. The risk-free interest rate is 6% with continuous compounding. The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________. A) 2,774.30                       B) 2,784.53                  C) 2,768.63                  D) 2,797.47
Assume you observe that the ABC stock index (S) is at a level of 290.00 and...
Assume you observe that the ABC stock index (S) is at a level of 290.00 and that the A&B 500 futures contract (F) expiring in exactly three months is at a level of 291.50. if the riskless rate of interest ( r) is 6.5 percent annually, what is the implied dividend yield on the ABC stock portfolio if no costless arbitrage opportunities exist in the marketplace?
Suppose the value of the S&P 500 Stock Index is currently $1,750. If the one-year T-bill...
Suppose the value of the S&P 500 Stock Index is currently $1,750. If the one-year T-bill rate is 5.3% and the expected dividend yield on the S&P 500 is 4.6%. a. What should the one-year maturity futures price be? (Do not round intermediate calculations.) Futures price $ b. What would the one-year maturity futures price be, if the T-bill rate is less than the dividend yield, for example, 3.6%? (Do not round intermediate calculations.) Futures price
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT