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You work as a Certified Financial Planner at an American Based Asset Management Company. Aside from managing stock portfolios, the company also does proprietary trading. You now notice the following quotations on your screen:
S&P 500 Index 3-month SIF Rf rate Dividend yield Index multiplier
= 850 points = 846.64 points (maturing 90 days) = 4% = 1.75% (annualized) = $100
Required:
a. Proof that arbitrage is possible.
b. Assuming the index rise and fall by 20%. Determine the arbitrage profit if the S&P 500 3-month futures price today is quoted at 875 points.
c. To what extent is your arbitrage profit dependent on the S&P 500 index's performance?
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