You are an arbitrageur looking at the stock index markets on December 18 and observe the following:

The cash S&P 500 index is at 300. Each point move represents $500.

The futures contract traded on this index which expires on June 18 is trading at 310.

The six month spot interest rate is 5% and the dividend rate over this period is 3%.

Define a strategy that will create an arbitrage assuming positions are held to maturity by answering the following: (Ignore any affect that marking-to-the-market might have.)

a) State the positions and cash flows on December 18.

b) State the actions and cash flows on June 18.

c) State the profit and the date on which it is realized.