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An investment bank engages in stock index arbitrage for its own and customer accounts. On a particular day, the S&P Index at the New York
An investment bank engages in stock index arbitrage for its own and customer accounts. On a particular day, the S&P Index at the New York Stock Exchange is 602.25 when the futures contract for delivery in 90 days is 614.75. If the annualized 90-day interest rate is 8.00 percent and the annualized) dividend yield is 3 percent, would program trading involving stock index arbitrage possibly take place? If so, describe the transactions that should be undertaken, and calculate the profit that would be made per each share of the S&P 500 Index used in the trade. An investment bank engages in stock index arbitrage for its own and customer accounts. On a particular day, the S&P Index at the New York Stock Exchange is 602.25 when the futures contract for delivery in 90 days is 614.75. If the annualized 90-day interest rate is 8.00 percent and the annualized) dividend yield is 3 percent, would program trading involving stock index arbitrage possibly take place? If so, describe the transactions that should be undertaken, and calculate the profit that would be made per each share of the S&P 500 Index used in the trade
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