A stock index spot price is $1,350. The zero coupon interest rate is 2.6%. What is the potential arbitrage profit if the 6-month futures contract on the index is priced at $1,342?
A) $8
B) $25
C) $32
D) $39

Question

Quizplus · Accepted Answer

Short the index at 1350 Invest $1350 for 6 months at 2.6% Long a futures contract at 1342 F₀ = S₀(1 + r)^0.5 = 1350(1.026)^0.5 = 1367 Profit = 1367 - 1342 = $25.00

A Stock Index Spot Price Is $1,350