Question: A proxy protfolio is made with a 98% correlation with an index that is currently priced at BDT 242. The future price is BDT 245.

A proxy protfolio is made with a 98% correlation with an index that is currently priced at BDT 242. The future price is BDT 245. Whcih is deliverable in 3 months. The financing cost for three month is 0.95 percent and the annual dividend rate is 2.5%

a) What do you understand by program trading?

b) What is the cost of carry?

c) What should be the current/correct price of the futures?

d) Is there any opportunity for the investor? If yes, how to exploit that opportunity?

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