Use the Information for the Question(s)below

question 61

Multiple Choice

Use the information for the question(s) below.
An exchange traded fund (ETF) is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of International Business Machines (IBM) ,three shares of Merck (MRK) ,and three shares of Citigroup Inc.(C) .Suppose the current market price of each individual stock are shown below:
-Suppose a security with a risk-free cash flow of $1000 one year from now trades for $909 today.If there are no arbitrage opportunities,then the current risk-free interest rate is closest to:

• A)8%.
• B)10%.
• C)11%.
• D)12%.

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Definitions:

Perfect Competitor

A theoretical market structure where numerous small firms produce identical products, allowing no single firm to affect the market price.

Long Run

In economics, this term describes a period in which all factors of production and costs are variable, allowing full adjustment to any change.

Total Profit

The financial gain made after subtracting all expenses from total revenue.

Profit-Maximizing

A strategy or process employed by businesses to determine the price and output level that returns the highest profit.