The Current Value of INDY Index Is 1,015 and a Portfolio

question 11

Multiple Choice

The current value of INDY index is 1,015 and a portfolio replicating this index has a value of $1,015.European options with a strike price K = $1,000 and maturing in T = 6 months trade on YBM.The continuously compounded,risk-free interest rate r is 5 percent per year.The stocks underlying INDY index have a dividend yield $\delta$ = 1.2 percent per year.A trader quotes a call price c= $80 and a put price p = $37.Then,the amount of arbitrage profits that you can make by trading securities based on one share of INDY are:

• A) 0
• B) $3.31
• C) $6.07
• D) $9.38
• E) None of these answers are correct.

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Definitions:

Singular Propositions

Statements that make a claim about a specific single entity or unique instance.

Syllogisms

Logical arguments that apply deductive reasoning to arrive at a conclusion based on two or more premises that are asserted to be true.

Minor Term

In syllogistic logic, the term that appears in the conclusion and is the subject of the minor premise.

Major Term

In logic, specifically in a syllogism, the major term is the predicate of the conclusion.