Use the Information for the Question(s) Below

question 72

Multiple Choice

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:

-Suppose that the ETF is trading for $424.50; you should

• A) sell the ETF and buy 2 shares of IBM, 3 shares of MRK, and 3 shares of C.
• B) sell the ETF and buy 3 shares of IBM, 2 shares of MRK, and 3 shares of C.
• C) buy the ETF and sell 2 shares of IBM, 3 shares of MRK, and 3 shares of C.
• D) do nothing, no arbitrage opportunity exists.

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Definitions:

Common Law

A legal system based on judicial decisions or case law, rather than statutory laws enacted by a legislature.

Specific Performance

A legal remedy in contract law requiring the breaching party to fulfill their part of the contract rather than simply paying damages.

Charles Dickens

A celebrated British novelist of the Victorian era, known for his vivid characters and depictions of social issues.

Adequate Compensation

Fair and reasonable recompense, often used in the context of eminent domain or when damages are awarded in a legal dispute.