The correct answer is B, which involves buying the futures contract and selling the underlying equity index. This strategy is based on index arbitrage, where a discrepancy exists between the theoretical value of the futures contract and its current market price. The theoretical value of the futures price is calculated using the formula:

$(F_0,t) = S_0 \cdot e^{(r - q) \cdot t}$

where:

• $S_0$ is the current spot price of the index (USD 3,625),
• $r$ is the continuously compounded risk-free rate (5% per year),
• $q$ is the continuously compounded dividend yield (2% per year),
• $t$ is the time to contract expiration in years (15 months, or 1.25 years).

Plugging in the values, the theoretical futures price is:

$(F_0,t) = 3,625 \cdot e^{(0.05 - 0.02) \cdot 1.25} = USD 3,763.52$

Since the current futures price is USD 3,759.52, which is lower than the theoretical price of USD 3,763.52, an arbitrage opportunity exists. By selling the higher-priced stocks underlying the equity index (or shorting the index) and buying the futures contract at the current price, an investor can lock in a risk-free profit. This is because the futures contract is underpriced relative to the theoretical value, allowing for a potential arbitrage profit.