Suppose You Observe the Spot S&P 500 Index at 1,210

question 1

Multiple Choice

Suppose you observe the spot S&P 500 index at 1,210 and the three month S&P 500 index futures at 1,205.Based on carry arbitrage,you conclude

• A)this futures market is inefficient because the futures price is below the spot price
• B)this futures market is indicating that the spot price is expected to fall
• C)the spot price is too high relative to the observed futures price
• D)the dividend yield is higher than the risk-free interest rate
• E)none of the above

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Definitions:

Sample Size

The number of observations or units included in a sample, which represents a portion of the population being studied.

Variable

A variable is an attribute that can take on various values among different individuals or across different times or places.

Confidence Level

The probability that a parameter will fall between two values for a specified proportion of times.

Confidence Interval

A range of values, derived from sample statistics, that is likely to contain the true population parameter with a specified level of confidence.