You Borrow $1,000 at 16% Per Year and Proceed to Buy

question 29

Multiple Choice

You borrow $1,000 at 16% per year and proceed to buy Asset XYZ for $1,000 in the cash market. This asset pays $10 quarterly. You then immediately sell a futures contract at $1,025 requiring delivery of asset XYZ in three months. What is the net profit or loss from your strategy of selling the futures contract after borrowing money to buy the asset ?

• A) $50.
• B) $10.
• C) -$5.
• D) -$10.

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Definitions:

Wisdom

The ability to apply knowledge, experience, understanding, and common sense in a way that is insightful, and often involves a deep understanding of people, things, events, or situations, resulting in a balanced judgement.

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