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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
Suppose that the riskfree interest rate is per annum with continuous compounding and that the dividend yield on a stock index is per annum. The index stands at and the futures price for a contract deliverable in four months is
a What arbitrage opportunities does this create?
b Describe the whole process of arbitrage.
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