Explanation

To determine if there's an arbitrage opportunity, we need to calculate the theoretical futures price and compare it to the actual futures price.

Given:

• Spot price (S) = USD 750
• Dividend yield (q) = 2% per annum
• Risk-free rate (r) = 3.5% per annum (annually compounded)
• Time (T) = 0.5 years
• Actual futures price = USD 757

Theoretical Futures Price Formula: $F = S \times (1 + r)^T \times (1 - q)^T$

Calculation: $F = 750 \times (1 + 0.035)^{0.5} \times (1 - 0.02)^{0.5}$ $F = 750 \times (1.035)^{0.5} \times (0.98)^{0.5}$ $F = 750 \times 1.01735 \times 0.99005$ $F = 750 \times 1.00724$ $F = 755.43$

Arbitrage Analysis:

• Theoretical price = USD 755.43
• Actual price = USD 757
• Since actual price > theoretical price, there is an arbitrage opportunity

Arbitrage Strategy:

1. Short the futures contract at USD 757
2. Borrow money at risk-free rate to buy the underlying asset
3. Hold the position for 6 months

Arbitrage Profit: $\text{Profit} = \text{Actual Price} - \text{Theoretical Price}$ $\text{Profit} = 757 - 755.43 = 1.57$

The closest option to 1.57 is 1.51 (Option B).

Note: The calculation shows the arbitrage profit per unit, and for one futures contract, the profit would be approximately USD 1.51.