If the Stock Index Is at 148,the Three-Month Futures Price

question 15

Multiple Choice

If the stock index is at 148,the three-month futures price is 151,the dividend yield is 5 percent and the interest rate is 8 percent,determine the profit from an index arbitrage if the stock ends up at 144 at expiration.(Ignore transaction costs. )

• A)1.89
• B)4.00
• C)7.00
• D)5.11
• E)-7.00

Develop ability to write concise, audience-centered messages.

Acknowledge the role of feedback in the communication process.

Recognize the impact of digital communication's opportunities and challenges.

Understand the application and avoidance of jargon in business writing.

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Definitions:

Free Trade

The policy of allowing unrestricted import and export of goods between countries, without tariffs, quotas, or other restrictions.

Total Surplus

The sum of consumer and producer surplus, which measures the total benefit to society from conducting transactions in a market.

Autarky

A situation where an economy is self-sufficient and does not engage in international trade.

Trade

The exchange of goods, services, or both between two or more parties.