Use the Following Information to Answer the Question(s)below

question 16

Essay

Use the following information to answer the question(s)below.
An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of Apple Inc.(APPL),one share of Google (GOOG),and ten shares of Microsoft (MSFT).Suppose the current stock prices of each individual stock are as shown below:
-If the ETF is currently trading for $1200,what arbitrage opportunity is available? What trades would you make?

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Definitions:

Residual Value

The estimated value that an asset will have at the end of its useful life, after it has been depreciated.

Present Value

The current value of future monetary amounts or sequences of cash inflows, factoring in a specific rate of interest.

Annuity

A monetary tool that issues a predetermined sequence of payments to someone, commonly used to generate an income for those who have retired.

Earnings Rate

The rate at which a company or investment generates income relative to a specific amount of assets, capital, or equity.