The current value of an index is 585, while three-month futures on the index are quoted at
Question:
The current value of an index is 585, while three-month futures on the index are quoted at 600. Suppose the (continuous) dividend yield on the index is 3% per year.
(a) What is the implied repo rate?
(b) Suppose it is possible for you to borrow at 6% for three months. Does this create any arbitrage openings for you? Why or why not?
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Lets tackle each part of the problem one by one a What is the implied repo rate The repo rate is the rate of return that can be earned by simultaneous...View the full answer
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Jehal Shah
I believe everyone should try to be strong at logic and have good reading habit. Because If you possess these two skills, no matter what difficult situation is, you will definitely find a perfect solution out of it. While logical ability gives you to understand complex problems and concepts quite easily, reading habit gives you an open mind and holistic approach to see much bigger picture.
So guys, I always try to explain any concept keeping these two points in my mind. So that you will never forget any more importantly get bored.
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