Answer: 4.18

## 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.

Author: LeetQuiz Editorial Team