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9. A stock index is at 1213.52. A futures contract on the index expires in 121 days. The price of the futures contract is 1358.50.
9. A stock index is at 1213.52. A futures contract on the index expires in 121 days. The price of the futures contract is 1358.50. The risk-free interest rate is 4.50 percent. The value of the dividends reinvested over the life of the futures is 245.0. (a) Show that the futures contract above is mispriced by computing what the price of this futures contract should be. [10M] (b) Show how an arbitrageur could take advantage of the mispricing. [10M]
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