If the Stock Market Index Is at a Level of 1,120

question 2

Multiple Choice

If the stock market index is at a level of 1,120 and the one-year forward on the index is 1,210, what is the implied repo rate in continuously-compounded terms (assuming zero dividends on the index) ?

• A) 5.72%
• B) 6.52%
• C) 7.72%
• D) 8.62%

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Definitions:

Maurice Kendall

Maurice Kendall was a British statistician known for his significant contributions to the field of statistics, including work in time series analysis and the development of the Kendall rank correlation coefficient.

Stock Returns

The gain or loss made from trading a stock, usually measured as the change in capital plus dividends in a given period.

EMH

The Efficient Market Hypothesis, a theory stating that stock prices fully reflect all available information, making it impossible to consistently achieve higher returns.

Passive Investment

An investment strategy focused on long-term gains with minimal buying and selling, often through index funds or ETFs.