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A market maker in stock index forward contracts observes a 6-month forward price of 116 on the index. The index spot price is 112 and

A market maker in stock index forward contracts observes a 6-month forward price of 116 on the index. The index spot price is 112 and the continuously compounded annual dividend yield on the index is 3%. The nominal risk-free interest rate is 8% compounded semi-annually. Describe actions the market maker could take to exploit an arbitrage opportunity and calculate the resulting profit(per index unit).

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