Use the Information for the Question(s) Below

question 4

Essay

Use the information for 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 International Business Machines (IBM), three shares of Merck (MRK), and three shares of Citigroup Inc. (C). Suppose the current market price of each individual stock are shown below:

-Assume that the ETF is trading for $426.00.What (if any)arbitrage opportunity exists? What (if any)trades would you make?

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Definitions:

JIT

Just-In-Time, a management strategy that aligns raw-material orders from suppliers directly with production schedules to improve efficiency and decrease waste.

Spread

Spread can refer to the difference between the bid and ask prices of financial instruments or the difference between interest rates on two different investments.

Trade Credit

A business arrangement where a buyer is allowed to purchase goods or services and pay the supplier at a later scheduled date, often used to finance short-term operational needs.

Consumer Credit

A type of credit granted to consumers to finance personal purchases.