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Australian securities exchange index

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Nancy Drew at TallTree, Inc. is seeking potential arbitrage opportunities in the Australian financial markets. She gathers the following data on the Australian Securities Exchange index (ASX 200). Based on these data, is the one-year forward contract correctly valued at its arbitrage-free price?

Yesterday close

6,928

One-year forward

6,540

Average dividend yield

4.20%

Annual risk-free rate

1.48%

1. No, it is over-valued relative to its arbitrage-free price. 

2. Yes, it is correctly valued relative to its arbitrage-free price.

3. No, it is under-valued relative to its arbitrage-free price.

Reference no: EM133060466

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