Question

You find the following information in December 2019. Assume the T-bill maturity and futures delivery are on the same day. Ignore transactions costs. Treasury Bill Maturity DTM Bid Asked Mar 20 90 1.19 1.18 Index Futures S&P 500 Index (CME) – 250 x index, cents per unit Open High Low Settle Mar 20 3324 3326 3320 3322 S&P 500 closed at $3329 on the same day. Suppose that if you buy one unit of S&P 500 index today, you will be entitled to a 2% dividend yield in March. Design a zero net investment arbitrage strategy involving: (1) buying the index for $3329, (2) shorting the futures for no cash now, (3) and borrowing $3329 at the spot rate. Show your profit per one futures contract (250 units of the index). a. $12,395 b. $10,114 c. $18,948 d. $11,639

          You find the following information in December 2019. Assume the
T-bill maturity and futures delivery are on the same day. Ignore
transactions costs.
 Treasury Bill
 Maturity          DTM               Bid                  Asked                             
Mar
20             90                    1.19                 1.18                                
 Index Futures
 S&P 500 Index (CME) – 250 x index, cents per unit
                         Open               High                Low                 Settle
Mar 20             3324                3326                3320                3322
 S&P 500 closed
at $3329 on the same day.
Suppose that if you buy one unit of S&P 500 index today, you
will be entitled to a 2% dividend yield in March. Design a zero net
investment arbitrage strategy involving: (1) buying the index for
$3329, (2) shorting the futures for no cash now, (3) and borrowing
$3329 at the spot rate. Show your profit per one futures contract
(250 units of the index).
a.
$12,395
b.
$10,114
c.
$18,948
d.
$11,639

Added by Kim B.

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