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(2) The spot price of the S&P 500 index is currently at 1200 per share. The 3-month futures price is the same as the spot

(2) The spot price of the S&P 500 index is currently at 1200 per share. The 3-month futures price is the same as the spot price. The simple interest rate is 2% for 3 months and the simple dividend yield is 1% for 3 months.

(a) Calculate the arbitrage-free futures price.

(b) Provide an arbitrage trading strategy.

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