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:

Utility Function

A formula that translates the bundle of goods and services selected by a consumer into a numerical value representing satisfaction or utility.

Coconut Consumption

Refers to the act of consuming coconuts or products derived from coconuts, influencing economic measures in regions where coconuts are a major commodity.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single participant has significant influence on price.

Marginal Rate of Substitution

The ratio at which a consumer can exchange quantities of one good for another while preserving the same degree of contentment.