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Suppose the S&P 500 Index Portfolio pays a dividend of 2% annually. The index currently is 2,000. The T-bill rate is 3%, and the S&P
Suppose the S&P 500 Index Portfolio pays a dividend of 2% annually. The index currently is 2,000. The T-bill rate is 3%, and the S&P futures price for delivery in one year is 2,030. Construct an arbitrage strategy to exploit the misplacing and show that your profits one year hence will equal the misplacing in the futures market.
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