An equity index stands at **100** points and the one year equity futures price is **107**.

The equity index is expected to have a dividend yield of **3**% pa. Assume that investors are risk-neutral so their total required return on the shares is the same as the risk free Treasury bond yield which is **10**% pa. Both are given as discrete effective annual rates.

Assuming that the equity index is fairly priced, an arbitrageur would recognise that the equity futures are: