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.









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
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