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1) The S&P portfolio pays a dividend yield of 1% annually. Its current value is 1500. The T-bill rate is 4%. Suppose the S&P futures price for delivery in 1 year is 1550. Construct an arbitrage strategy to exploit the mispricing and show that your profits 1 year hence will equal the mispricing in the futures market. 2) Joan Tam CFA believes she has identified an arbitrage opportunity for a commodity as indicated by the following information: Spot price for commodity: $120 Futures price for commodity expiring in 1 year: $125 Interest rate for 1 year: 8% a. Describe the transactions necessary to take advantage of this specific arbitrage opportunity. b. Calculate the arbitrage profit.
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