Explanation:
First, calculate the value of the futures as:
The actual futures price is 4,200, so selling the futures and buying the underlying index nets a profit of .
(Book 3, Module 36.1, LO 36.f)
Ultimate access to all questions.
Question 35
A 9-month futures contract on an equity index is currently priced at 4,200. The underlying stocks within the index are valued at 4,150 and pay dividends at an annual rate of 2.20%. The risk-free rate is currently 3.10%. Assuming a trader wants to attempt to profit through a potential arbitrage opportunity, which of the following statements is correct?
A
The trader should buy the futures and sell the stocks in the index for an arbitrage profit of $15.
B
The trader should buy the stocks in the index and sell the futures contract for an arbitrage profit of $15.
C
The trader should buy the futures and sell the stocks in the index for an arbitrage profit of $23.
D
The trader should buy the stocks in the index and sell the futures contract for an arbitrage profit of $23.
No comments yet.