1. A three-month forward contract on an index is currently trading at 756, while the spot value of the index is at 750. The three-month interest rate is 6% per annum (based on continuous compounding).

a. what is the implied (continuously compounded) dividend yield on the index assuming no arbitrage opportunity exists?

b. Suppose you estimate that the dividend yield is in fact 1%. Is there an arbitrage opportunity? What would you do to take advantage of the arbitrage opportunity?