Suppose the S&P 500 Index portfolio pays a dividend yield of 2% annually. The index currently is

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Suppose the S&P 500 Index portfolio pays a dividend yield of 2% annually. The index currently is 1,800. The T-bill rate is 3%, and the S&P futures price for delivery in one year is $1,833. Construct an arbitrage strategy to exploit the mispricing and show that your profits one year hence will equal the mispricing in the futures market?
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Essentials of Investments

ISBN: 978-0077835422

10th edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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