On July 5, a stock index futures contract was at 394.85. The index was at 392.54, the risk free rate was 2.83 percent, the dividend yield was 2.08 percent, and the contract expired on September 20. Determine whether an arbitrage opportunity was available and explain what transactions were executed.

Solution :

Given :

The stock index contracts at = $ 394.85

Index = $ 392.54

Risk fee rate =  2.83 %

Dividend = 2.08 %

Now take long position on the index at $ 392.54 per share

After 75 days, they have to pay $ 392.54 + 392.54 x 2.83 x 75/365

                                                   = $ 394.823

Take s short position on the stock index futures contract on $ 394.85 per share.

Dividends received = $ 392.54 x 2.08%

                                 = $ 8.164

Therefore, there is an  arbitrage opportunity.

the correct answer would be b, when, queen, calder hall and london.

explanation:

we always capitalize words when a paragraph or sentence is starting, when an important name is used, when a place is being written, or simply when a noun is used, etc. so in this sentence, sentence is starting from 'when', so it will be written in capital letters. secondly, queen is considered to be an important person, so it will also be written in capital letter. next, the name of the town is mentioned, i-e calder hall, which will also be written in capital letters. in the last,   city name is being used, 'london', which will also be written in capital letters. so option b is the most appropriate one.