Imagine that the Bovespa index is currently at 104,650 and the 1-year govt rate is 3% and

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Imagine that the Bovespa index is currently at 104,650 and the 1-year govt rate is 3% and the dividend yield is 2.5%.

a. Please calculate, what should the Bovespa index 1-year future price should be today

b. If the current price of the future of the Bovespa index is 105,200, can you think of a possible arbitrage? If so, explicitly explain the arbitrage at time 0, time 1, and the profit achieved. The contract multiplier for Bovespa is 1 BRL.

Give the correct answer with explaination and calculation step by step

Related Book For answer-question

An Introduction to Derivative Securities Financial Markets and Risk Management

ISBN: 978-0393913071

1st edition

Authors: Robert A. Jarrow, Arkadev Chatterjee

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Posted Date: Mar 31, 2023 12:31 AM

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Imagine that the Bovespa index is currently at 104,650 and the 1-year govt rate is 3% and

Question:

Expert Answer:

a The 1year future price of the Bovespa index today should be F1 104650 1 0025 1 003 F1 104650 10... View the full answer

An Introduction to Derivative Securities Financial Markets and Risk Management

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