You Would Like to Take a Position in the S&P500

question 23

Multiple Choice

You would like to take a position in the S&P500 stock index,but have decided to use market-index futures contracts and T-bills rather than actually purchasing the index.Your strategy will duplicate the payoff you would receive if you held the index and your goal is to time the market.If you want to minimize transactions costs and are bullish you should

• A) buy and hold T-bills and shift in and out of futures contracts as you expect the market to turn up or down.
• B) sell futures contracts and T-bills and shift back and forth between them as you expect the market to turn up or down.
• C) buy futures contracts and T-bills and shift back and forth between them as you expect the market to turn up or down.
• D) buy and hold futures contracts and shift in and out of T-bills as you expect the market to turn up or down.
• E) sell futures contracts and buy T-bills and shift back and forth between them as you expect the market to turn up or down.

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Definitions:

Aggregate Planning

The process of creating a production plan to meet demand over a medium-term horizon by adjusting production rates, workforce levels, and inventory levels.

Average Demand

Refers to the average quantity of a product or service that consumers purchase over a specific time period.

Peak Demand

The highest level of demand for a product or service in a particular period, often requiring careful planning and resource allocation to meet.

Minimum Demand

The lowest level of demand for a product or service over a given period, crucial for planning minimum production or service capability.