Using the Spot and Forward Markets to Borrow at the Implied

question 7

Multiple Choice

Using the spot and forward markets to borrow at the implied repo rate entails

• A) Selling the spot asset and buying it forward.
• B) Buying the spot asset and selling it forward.
• C) Selling the spot today and buying it back at the then-prevailing spot price in the future.
• D) Buying the spot today and selling it at the then-prevailing spot price in the future.

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Definitions:

Retained Earnings

Retained earnings are the portion of a company's profits that are kept or reinvested in the business instead of being distributed to shareholders as dividends.

Weighted-average Shares

A calculation used in accounting and finance to determine the average number of shares outstanding in a company, adjusted for stock splits and other changes.

Price-earnings Ratio

A financial metric comparing a company's market price per share to its earnings per share, indicating the value given by the market for each dollar of earnings.

Price-earnings Ratio

The price-earnings ratio, or P/E ratio, measures a company's current share price relative to its per-share earnings, indicating the market's valuation of a company's growth potential.