1 years futures pricew on a stock index = 1825, stock index is currently 1800. 1yr risk free = 3%. year end dividend paid on the 1800 investment = $25.
Assuming you short sell the stocks in the market index, the proceeds of the short sale are kept with the broker and you do not recieve any interest income on the funds. is there still an arbitrage opportunity (assuming you dont already own the shares in the index)? explain
Also, given a stock index of 1800, how high and low can the futures price be without giving rise to arbitrage opportunities?