33. Consider an equity index futures contract maturing in 15 months, currently priced at USD 3,759.52. The underlying equity index has a present value of USD 3,625. The equity index is expected to yield a continuous dividend at an annual rate of 2%. Additionally, the continuously compounded risk-free interest rate is set at 5% per year. Assuming no transaction costs, identify an appropriate strategy to exploit any arbitrage opportunities. | Financial Risk Manager Part 1 Quiz - LeetQuiz
Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Consider an equity index futures contract maturing in 15 months, currently priced at USD 3,759.52. The underlying equity index has a present value of USD 3,625. The equity index is expected to yield a continuous dividend at an annual rate of 2%. Additionally, the continuously compounded risk-free interest rate is set at 5% per year. Assuming no transaction costs, identify an appropriate strategy to exploit any arbitrage opportunities.
Exam-Like
A
Buy the futures contract and buy the underlying.
9.0%
B
Buy the futures contract and sell the underlying.
Comments
Loading comments...
55.1%
C
Sell the futures contract and buy the underlying.
29.5%
D
Sell the futures contract and sell the underlying.