If the S&P 500 Index Futures Contract Is Overpriced Relative

question 68

Multiple Choice

If the S&P 500 index futures contract is overpriced relative to the spot S&P 500 index,you should __________.

• A) buy all the stocks in the S&P 500 and write put options on the S&P 500 index
• B) sell all the stocks in the S&P 500 and buy call options on S&P 500 index
• C) sell S&P 500 index futures and buy all the stocks in the S&P 500
• D) sell short all the stocks in the S&P 500 and buy S&P 500 index futures

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Definitions:

Reimbursement

The act of compensating someone for an expense or loss they have incurred.

Gratuitous Bailment

A bailment where the bailee (the person receiving the property) does not pay the bailor (the property owner) and holds the property for the benefit of the bailor or a third party.

Intangible Property

Property that is incapable of being apprehended by the senses (such as by sight or touch). Intellectual property is an example of intangible property.

Patent

A government grant giving an inventor exclusive rights to make, use, or sell an invention for a certain number of years.