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

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

#### Earn Coins

Coins can be redeemed for fabulous gifts.

##### Need Online Homework Help?

Most questions answered within 1 hours.

##### Active Questions
• Z - Flooring Inc. shows the following information on its 2018 financial statements: Sales =\$150,000; COGS=\$78,500;...
• t turns out an asthma attack is caused by a misfire in biological feedback mechanisms that...
• please check my answers 7. In the absence of light photoreceptor calcium and sodium channels are...
• Employers often define metrics to measure productivity or effectiveness in the workplace. Examples include the number...
• Draw the structure that corresponds to the following names R-2-bromobutane (E)-3-methyl-2-pentene 3,3-dimethyl-1-hexyne
• Solve the initial value problem 2(sin(t)dydt+cos(t)y)=cos(t)sin^3(t) for 0<t<π0<t<π and y(π/2)=13.y(π/2)=13. Put the problem in standard form....