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2 ) Suppose that the risk - free interest rate is 1 0 % per annum with continuous compounding and that the dividend yield on

2) Suppose that the risk-free interest rate is 10% per annum with continuous compounding and that the dividend yield on a stock index is 4% per annum. The index stands at 320, and the futures price for a contract deliverable in four months is 325.
a) What arbitrage opportunities does this create?
b) Describe the whole process of arbitrage.

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