1) The S&P portfolio pays a dividend yield of 1% annually. Its current value is 1,500. The T-bill rate is 4%. Suppose the S&P futures price for delivery in 1 year is 1,550. Construct an arbitrage strategy to exploit the mispricing and show that your profits 1 year hence will equal the mispricing in the futures market.

2)Joan Tam, CFA, believes she has identified an arbitrage opportunity for a commodity as indicated by the following information: Spot price for commodity: $120

Futures price for commodity expiring in 1 year: $125

Interest rate for 1 year: 8% a. Describe the transactions necessary to take advantage of this specific arbitrage opportunity.

b. Calculate the arbitrage profit.