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Suppose that the risk-free interest rate is 8% per annum with continuous compounding and that the dividend yield on a stock index is 3% per

Suppose that the risk-free interest rate is 8% per annum with continuous compounding and that the dividend yield on a stock index is 3% per annum with continuous compounding. The index is standing at 350 and the futures price for a contract deliverable in 6months is 360.

#1) What should be the theoretical futures price for the stock index?

#2) What arbitrage opportunities does this create?

#1) theoretical futures price = $366.38

#1) theoretical futures price = $358.86

#1) theoretical futures price = $355.87

#1) theoretical futures price = $368.35

#2) long futures contracts, and short the shares underlying the index

#2) long futures contracts, and buy the shares underlying the index

#2) short futures contracts, and short the shares underlying the index

#2) short futures contracts, and buy the shares underlying the index

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