You Lend $2,000 at 12% Per Year for Three Months

question 6

Multiple Choice

You lend $2,000 at 12% per year for three months and proceed to short sell Asset XYZ for $2,000 in the cash market. You are required to pay $200 to the lender of Asset XYZ (which is the proceeds the lender would have received) . You then immediately buy a futures contract at $1,850 for delivery of asset XYZ in three months (this will cover your short position) . What is the net profit or loss from your strategy of lending money, short selling, and buying the futures contract?

• A) $30
• B) $20
• C) $10
• D) $0

---

Definitions:

Utility Function

A utility function represents a consumer's preference for a set of goods and services, showing satisfaction levels for different consumption bundles.

Stock Market

A public market for the trading of company stock and derivatives at an agreed price; it is a key component of the economy.

Day Trader

An investor who buys and sells securities within the same trading day.

Utility Function

An economic model or formula that represents a consumer's preferences by assigning a utility value to each possible choice or bundle of goods.