The current level of an equity index is 1364.13 and its future contract with 25 days...

 

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The current level of an equity index is 1364.13 and its future contract with 25 days until maturity (t = 25/250 = 0.10 years) trades at 1366.70. The annual dividend yield of the index is 2.1%. Round to 2 decimal places and enter without the percentage sign or the dollar sign (e.g., 10.466% would be entered as 10.47, $5.2963 would be entered as 5.30). a) Find the annual risk-free rate implied by the spot-futures parity. % b) Assume that you can borrow or lend at 3% annual, and an index fund is available to buy or sell. Devise a zero-net-investment trading strategy which will generate a guaranteed profit at the expiration date of the futures contract. Take contract size as $1 times the index value. Ignore fees, transaction costs, and margin requirements. What would be the profit per one unit of the futures contract? $ c) Is this an arbitrage opportunity? ✓ (Click to select) True False The current level of an equity index is 1364.13 and its future contract with 25 days until maturity (t = 25/250 = 0.10 years) trades at 1366.70. The annual dividend yield of the index is 2.1%. Round to 2 decimal places and enter without the percentage sign or the dollar sign (e.g., 10.466% would be entered as 10.47, $5.2963 would be entered as 5.30). a) Find the annual risk-free rate implied by the spot-futures parity. % b) Assume that you can borrow or lend at 3% annual, and an index fund is available to buy or sell. Devise a zero-net-investment trading strategy which will generate a guaranteed profit at the expiration date of the futures contract. Take contract size as $1 times the index value. Ignore fees, transaction costs, and margin requirements. What would be the profit per one unit of the futures contract? $ c) Is this an arbitrage opportunity? ✓ (Click to select) True False

Answer rating: 100% (QA)

a To find the annual riskfree rate implied by the spotfutures parity we can use the formula F S er t ... View the full answer