Exhibit 21.5 Use the Information Below for the Following Problem(S)

question 22

Multiple Choice

Exhibit 21.5
Use the Information Below for the Following Problem(S)
The S&P 500 stock index is at 1100. The annualized interest rate is 3.5% and the annualized dividend is 2%.
-Refer to Exhibit 21.5.If the futures contract was currently available for 1050,indicate the appropriate strategy that would earn an arbitrage profit.

• A) Long futures, and short the index.
• B) Short futures and long the index.
• C) Long futures and long the index.
• D) Short futures and short the index.
• E) None of the above.

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Definitions:

Leucippus

An ancient Greek philosopher, considered one of the earliest proponents of atomism, the theory that the universe is composed of indivisible components.

Vacuum

A space entirely devoid of matter, or having a pressure much lower than atmospheric pressure.

Law of Conservation

A principle stating that in a closed system, mass (in classical physics) or mass and energy (in quantum physics), cannot be created or destroyed, but only transformed or transferred.

Mass

Mass is a property of physical objects that quantifies the amount of matter within them, offering resistance to acceleration when a force is applied.