State the positions you would take to arbitrage

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Suppose the spot price of the S&P500 stock index is 2238. The risk free rate is .0085 and the dividend yield on the S&P500 is .0165. The October futures price on the index (T = .4932) is 2225 today.

A. State the positions you would take to arbitrage and show the cash flows from the positions if futures price = spot price = 2257 at expiration.

B. Redo part (a) if the October futures price is 2234 today and price at expiration is 2152.

Reference no: EM131528540

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