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

question 57

Multiple Choice

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:

-Suppose that a security with a risk-free cash flow of $1000 in one year trades for $930 today.If there are no arbitrage opportunities,then the current risk-free rate is closest to:

• A) 6.0%
• B) 6.5%
• C) 7.0%
• D) 7.5%
• E) 8.0%

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Definitions:

Ratio Manipulation

Ratio manipulation is the practice of altering financial figures or ratios in a company's financial statements in order to present a more favorable image of its financial health or performance.

Financial Leverage

The use of borrowed funds to increase the potential return on investment, amplifying both gains and losses.

Profit Margin

A financial metric that measures the percentage of revenue that exceeds the costs of goods sold, indicating the efficiency in which a company turns sales into profits.

Sales

The total amount of goods or services sold by a company during a specified financial period.