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Suppose the S&P 500 Index portfolio pays a dividend yield of 2% annually. The index currently is 3,000. The T-bill rate is 3%, and the
Suppose the S&P 500 Index portfolio pays a dividend yield of 2% annually. The index currently is 3,000. The T-bill rate is 3%, and the S&P futures price for delivery in one year is $3,045. 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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