USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 38

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The S&P 500 stock index is at 1100. The annualized interest rate is 3.5 percent, and the annualized dividend is 2 percent.
-Refer to Exhibit 15.9. If the futures contract was currently available for 1050, indicate the appropriate strategy that would earn an arbitrage profit.

• A) long futures and short the index
• B) short futures and long the index
• C) long futures and long the index
• D) short futures and short the index
• E) None of these are correct.

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Definitions:

Counter Currency

The second currency listed in a foreign exchange rate transaction, which can be bought or sold relative to the base currency.

Purchasing Power

The ability of an individual or group to buy goods or services, often tied to income levels and inflation.

Appreciation

An increase in the value of one currency relative to another currency.

Nanotechnology

The science and technology of creating and utilizing materials, devices, and systems by manipulating matter at the nanometer scale.