Arbitrage profit can be made in six months, Accounting Basics

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Arbitrage profit can be made in six months

Problem:

The S & R index has a spot price of S0 = 1300. The nominal rate of interest compounded semiannually is 0.06 and no dividends will be paid in the following six months. You observe a six month forward price of 1340.

Required:

Question: What arbitrage profit can be made in six months?

Note: Provide support for rationale.

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Accounting Basics: Arbitrage profit can be made in six months

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Accounting Basics: Arbitrage profit can be made in six months

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