Question: Question 7 a ) The current stock index level is 3 5 0 . The continuously compounded risk - free interest rate is 4 %

Question 7
a) The current stock index level is 350. The continuously compounded risk-free interest rate is 4% per annum, and the continuous dividend yield on the index is 3% per annum. What is the 4-month futures price of the stock index?
b) The continuously compounded risk-free interest rate is 6% per annum, and the continuous dividend yield on the index is 4% per annum. If the current stock index level is 400, what will the 4-month futures price be? Is there an arbitrage opportunity?

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