Answer Happy

This is a problem that has
TWO questions. Therefore, please choose
TWO answers (one choice for each question) to get
full credit for this questions, otherwise you will only get
partial points.
Suppose that the risk-free interest rate is 8% per
annum with continuous compounding and that the dividend yield on a
stock index is 3% per annum with continuous
compounding. The index is standing at 350 and the
futures price for a contract deliverable in 6 months
is 360.
#1) What should be the theoretical futures price for the
stock index?
#2) What arbitrage opportunities does this
create?
#1) theoretical futures price = $366.38
#1) theoretical futures price = $358.86
#1) theoretical futures price = $355.87
#1) theoretical futures price = $368.35
#2) long futures contracts, and short the shares
underlying the index
#2) long futures contracts, and buy the
shares underlying the index
#2) short futures contracts, and short the shares
underlying the index
#2) short futures contracts, and buy the
shares underlying the index