Suppose I know S&P index, interest rate, futures price of S&P index in one year.

Question

Suppose I know S&P index, interest rate, futures price of S&P index in one year. And there exists mispricing gap. So how I decide whether to buy or sell the future, index to make a gain? Should I worry about the change of the interest rate, which can cause the numeric cost or gain to change? Suppose I know S&P index, interest rate, futures price of S&P index in one year. And there exists mispricing gap. So how I decide whether to buy or sell the future, index to make a gain? Should I worry about the change of the interest rate, which can cause the numeric cost or gain to change?

Explanation / Answer

Ans

If S&P index is going to rise in the future then we should purchase it now and sell it in the future when the price will rise.

If S&P index is going to fall in the future then we should sell it now and purchase it in the future when the price will fall

Yes we should worry about interest rate which can cause the numeric cost or gain to change.

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