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Q7: Assume that the S\&P500 currently has a value of 2800 . The dividend yield...

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Q7: Assume that the S\&P500 currently has a value of 2800 . The dividend yield on the underlying stocks in the index is expected to be 2% over the next six months. New-issue sixmonth Treasury bills now sell for a six-month yield of 0.5%. 1. What is the theoretical value of a six-month futures contract on the S\&P500? 2. Suppose the futures price was instead 3000 . Describe an arbitrage strategy. Q8. Consider the following European call option: S=$100,K=$110,r=5%,T= of 1. Suppose at year-end stock can take only two values: ST=$125 or $75. a. What should be the price of this option? b. How could you construct a portfolio that perfectly replicates this option? c. What is the price of a put option with the same strike price and time-to- maturity

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