Compute the ‘fair' value of the two nearest to expiration futures contracts on the S&P500 Index (SPX) using SPX as the underlying asset. Answer the following questions:
a. What interest rate and dividend yield did you use?
b. Did the futures contract settle above or below SPX?
c. What are the transaction costs in index arbitrage activity?
d. What are the implied interest rates using the settlement prices?
e. What are the issues in doing index arbitrage (e.g. short selling)?