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:

Maker

The person or entity that creates or produces something, often referred to in contexts such as art, manufacturing, or finance.

Notes

Short-term financial instruments, typically in the form of a debt or loan, that require repayment of the principal and interest by the issuer.

Drafts

Preliminary versions of documents, or negotiable instruments drawn by one party (drawer) ordering another party (drawee) to pay a specified sum to a third party.

Indorsed in Blank

A signature on a negotiable instrument like a check, making it payable to whoever holds the instrument, without naming a specific endorsee.