(a)
To calculate:
In this part of the problem we have to find out whether the futures contract is mispriced or not. For this we have to find out contract's current value on the basis of the information and then compare to its current value for finding out whether it's priced correctly or not.
b
In this part of the problem we have to find out the zero net investment arbitrage portfolio This can be done by creating a portfolio in which we buy mispriced futures, sell expensive stocks and lend the money made from short sale.
(c)
In this part of the problem we have to find out whether the profit of 4 will still be available if there is no interest available on lending the proceeds of a short sale.
(d)
In this part of the problem we have to find out the no arbitrage band.
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