Consider a Portfolio Which Uses an European Index as the Underlying

question 18

Multiple Choice

Consider a portfolio which uses an European index as the underlying asset.The pay offs of the underlying asset in the up node and down node is 1,390 and 1,330 respectively.If the risk-free rate is 3.5% and the pay-offs of structured bond in the up node and down nodes are €214.50 and €169.50 respectively.Calculate the amount of money invested in a risk-free security.

• A)+€900
• B)-€850
• C)-€800
• D)+€950

---

Definitions:

Price Elasticities

The responsiveness of the quantity demanded or supplied of a good to a change in its price.

Excise Tax

A tax charged on specific goods and services, such as tobacco and gasoline, intended to reduce their consumption or raise revenue.

Deadweight Loss

A loss in social welfare that occurs when market equilibrium is not achieved due to externalities or market control.

Tax Structure Proposals

Recommendations or plans put forward to modify how taxes are imposed by the government, which can include changes in tax rates, bases, or the introduction of new taxes.