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...
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
55.1%
C
Sell the futures contract and buy the underlying.
29.5%
D
Sell the futures contract and sell the underlying.