You Borrow $5,000 at 8% Per Year and Proceed to Buy

question 33

Multiple Choice

You borrow $5,000 at 8% per year and proceed to buy Asset XYZ for $5,000 in the cash market. This asset pays $100 quarterly. You then immediately sell a futures contract at $5,500 requiring delivery of asset XYZ in three months. Which of the below statements is TRUE?

• A) At the end of three month, the settlement of the futures contract generates a total proceeds of $5,600.
• B) At the end of three month, the cost of the loan generates a total outlay of $5,100
• C) Your strategy of selling the futures contract after borrowing money to buy the asset produces a net profit of $500.
• D) All of these

---

Definitions:

Employee's Benefit

Various forms of compensation provided to employees beyond salaries, including health insurance, retirement plans, and paid vacation.

Personal

Relating to or affecting a particular person rather than anyone else; this term is often used in law to distinguish between an individual's private affairs and their public or business roles.

Health Insurance

A type of insurance coverage that pays for medical and surgical expenses incurred by the insured.

Insurable Interest

A requirement in insurance contracts that the policyholder must be at risk of suffering a genuine loss or damage if the insured event occurs.