Suppose the S&P 500 Index portfolio pays a dividend yield of 2% annually. The index currently is
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Suppose the S&P 500 Index portfolio pays a dividend yield of 2% annually. The index currently is 3,000. The T-bill rate is 3%, and the S&P futures price for delivery in one year is $3,045. Construct an arbitrage strategy to exploit the mispricing and show that your profits one year hence will equal the mispricing in the futures market.
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Identify the mispricing The mispricing in the futures market is the difference between the futures p...View the full answer
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Related Book For
ISE Essentials Of Investments
ISBN: 9781265450090
12th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
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