The current level of a stock index is 450. The dividend yield on the index is 4% per year(in continuously compounded terms), and the risk-free rate if interest is 8% for six-month investments. A six-month futures contract on the index is trading for 465. Identify the arbitrage opportunities in this setting, and explain how you would exploit them. 

Answer rating: 100% (QA)

The opportunity for arbitrage here is to buy the stock index at 450 and sell ... View the full answer