Consider a Portfolio Which Uses an European Index as the Underlying

question 6

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.Find the value of the derivative assuming no-arbitrage.

• A)€214.00
• B)€169.50
• C)€220.00
• D)€250.50

---

Definitions:

Actively Traded

Securities or assets that are frequently bought and sold, often characterized by high trading volumes.

Agricultural Futures

Futures contracts that are based on the future price of agricultural products such as wheat, corn, soybeans, and others, used by farmers and investors to hedge risks or speculate.

Actively Traded

Refers to securities or assets that are frequently bought and sold in financial markets, often indicated by high daily volume.

Futures Contract

A legal agreement to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.