Homework Answers
No-arbitrage price of futures = spot price * e(r-d)*t,
where r = risk free rate
d = dividend yield
t = time to expiration in years.
No-arbitrage price of futures = 3126 * e(0.04-0.011)*(3/12)
No-arbitrage price of futures = 3148.75.
If the futures are trading at 3140, the futures are underpriced, and you would want to buy the futures and sell the index in the spot market.
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