An Exchange Traded Fund (ETF) is a security that represents a portfolio of individual stocks Consider an ETF for which each share represents a portfolio of two shares of Hewlett Packard (HPQ), one share of Sears (SHLD), and three shares of General Electric (GE) Suppose the current stock prices of e...

a We can value the portfolio by summing the value of the se ...

An Exchange-Traded Fund (ETF) is a security that represents a portfolio of individual stocks. Consider an ETF

Question:

An Exchange-Traded Fund (ETF) is a security that represents a of individual stocks. Consider an ETF for which each share represents a of two shares of Hewlett-Packard (HPQ), one share of Sears (SHLD), and three shares of General Electric (GE). Suppose the current stock prices of each individual stock are as shown here:
Stock .. Current Market Price
HPQ ........ $28
SHLD ...... $40
GE ........ $14

a. What is the price per share of the ETF in a normal market?
b. If the ETF currently trades for $120, what arbitrage opportunity is available? What trades would you make?
c. If the ETF currently trades for $150, what arbitrage opportunity is available? What trades would you make?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...