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Suppose a Russell index portfolio pays a dividend yield of 3% annually. The index value currently is 900. The T-bill rate is 5% and the
Suppose a Russell index portfolio pays a dividend yield of 3% annually. The index value currently is 900. The T-bill rate is 5% and the Russell futures price for delivery in one year is $ 912. Construct an arbitrage strategy to exploit the mispricing and show that your profits one year hence will equal the mispricing in the futures market.
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