The S&P 500 Index is $2400.
The cost of financing = 1%. The dividend yield = 2% for the Index.
The three month futures price is $2425.
The six month futures price is $2325.
a. What is the cost of buying the stocks in the index, financing the purchase out three months, and factoring in the dividends received?
b. What is the cost of borrowing the stocks in the index, selling the stocks, investing the funds received for three months, and paying the dividends to the person from whom you borrowed the stocks?
c. What is the cost of buying the stocks in the index, financing the purchase out six months, and factoring in the dividends received?
d. What is the cost of borrowing the stocks in the index, selling the stocks, investing the funds received for six months, and paying the dividends to the person from whom you borrowed the stocks?
e. What should the three month futures price be? Why?
f. Is there an arbitrage available concerning the three month futures price? What must be done to lock in a riskless profit?
g. What should the six month futures price be? Why?
h. Is there an arbitrage available concerning the six month futures price? What must be done to lock in a riskless profit?
i. Should the futures curve for the S&P 500 Index be in contango or backwardation?
j. For # h, what is the present value of the riskless profit that you are set to receive in 6 months?