An investment bank engages in stock index arbitrage for its own and customer accounts. On a particular

Question:

An investment bank engages in stock index arbitrage for its own and customer accounts. On a particular day, the S&P Index at the New York Stock Exchange is 602.25 when the futures contract for delivery in 90 days is 614.75. If the annualized 90-day interest rate is 8.00 percent and the (annualized) yield is 3 percent, would program trading involving stock index arbitrage possibly take place? If so, describe the transactions that should be undertaken, and calculate the profit that would be made per each "share" of the S&P 500 Index used in the trade.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...