1. Suppose that the risk free interest rate is 5% per annum (continuous compounding) and that the dividend yield on a stock index is 0% per annum. The index is standing at 1000, and the futures price for a contract deliverable in 5 months is 1010. What is the futures price and what arbitrage opportunity does this create?
2. Suppose you own 10,000 shares what are worth $50 each. How can put options be used to provide you with insurance against a decline in the value of your holding over the next 1-year?
3. What is a covered call and when might you use a covered call strategy?