1. If the stock index is at 148, the three-month futures price is 151, the dividend yield is 5 percent and the interest rate is 8 percent, determine the profit from an index arbitrage if the stock ends up at 144 at expiration. (Ignore transaction costs.). Show your work.
2. Fred is setting up a trust fund for his son. The trust will pay his son $5,000 each year for the next 17 years. If the trust fund earns 5.5 percent interest per year, how much does Fred have to put into the trust fund today in order to fund the series of annual payments.