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The S&P 500 is currently at a value of 4,130 (as of July 29th, 2022 market close). On the same day, the Dec 22' S&P 500 futures contracts closed out the day at 4,152.25. These contracts mature on Dec 30th 2022 and thus have exactly 5 months remaining until their maturity. The continuously compounded risk-free rate is 2.50% per annum. The yield on the S&P 500 with continuous compounding is 1.52% per annum. Is there an arbitrage trade available between the S&P 500 index and the Dec 22' futures above, and if so what is the magnitude of the profit that can be captured via arbitrage? Assume we can borrow and lend at the risk-free rate and have no or negligible trading costs. No there is no arbitrage trade available. The S&P futures are perfectly priced in line with No Arbitrage. O There is an available arbitrage profit of $1.73 per index. O There is an available arbitrage profit of $2.52 per index. There is an available arbitrage profit of $5.35 per index.

The S&P 500 is currently at a value of 4,130 (as of July 29th, 2022 market close). On the same day, the Dec 22' S&P 500 futures contracts closed out the day at 4,152.25. These contracts mature on Dec 30th 2022 and thus have exactly 5 months remaining until their maturity. The continuously compounded risk-free rate is 2.50% per annum. The yield on the S&P 500 with continuous compounding is 1.52% per annum. Is there an arbitrage trade available between the S&P 500 index and the Dec 22' futures above, and if so what is the magnitude of the profit that can be captured via arbitrage? Assume we can borrow and lend at the risk-free rate and have no or negligible trading costs. No there is no arbitrage trade available. The S&P futures are perfectly priced in line with No Arbitrage. O There is an available arbitrage profit of $1.73 per index. O There is an available arbitrage profit of $2.52 per index. There is an available arbitrage profit of $5.35 per index.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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H4.
The S&P 500 is currently at a value of 4,130 (as of July 29th, 2022 market close). On the same day, the Dec 22' S&P 500 futures contracts closed out the day at 4,152.25. These contracts mature on Dec 30th 2022 and thus have exactly 5 months remaining until their maturity. The continuously compounded risk-free rate is 2.50% per annum. The yield on the S&P 500 with continuous compounding is 1.52% per annum. Is there an arbitrage trade available between the S&P 500 index and the Dec 22' futures above, and if so what is the magnitude of the profit that can be captured via arbitrage? Assume we can borrow and lend at the risk-free rate and have no or negligible trading costs. O No there is no arbitrage trade available. The S&P futures are perfectly priced in line with No Arbitrage. There is an available arbitrage profit of $1.73 per index. There is an available arbitrage profit of $2.52 per index. There is an available arbitrage profit of $5.35 per index.
Transcribed Image Text:The S&P 500 is currently at a value of 4,130 (as of July 29th, 2022 market close). On the same day, the Dec 22' S&P 500 futures contracts closed out the day at 4,152.25. These contracts mature on Dec 30th 2022 and thus have exactly 5 months remaining until their maturity. The continuously compounded risk-free rate is 2.50% per annum. The yield on the S&P 500 with continuous compounding is 1.52% per annum. Is there an arbitrage trade available between the S&P 500 index and the Dec 22' futures above, and if so what is the magnitude of the profit that can be captured via arbitrage? Assume we can borrow and lend at the risk-free rate and have no or negligible trading costs. O No there is no arbitrage trade available. The S&P futures are perfectly priced in line with No Arbitrage. There is an available arbitrage profit of $1.73 per index. There is an available arbitrage profit of $2.52 per index. There is an available arbitrage profit of $5.35 per index.
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