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 one share of Hewlett-Packard (HPQ), two shares of Sears (SHLD), and four shares of General Electric (GE). Suppose the current stock prices of each individual stock are as shown here:

a. What is the price per share of the ETF in a normal market?

b. If the ETF currently trades for $164, what arbitrage opportunity is available? What trades would you make?

c. If the ETF currently trades for $194, what arbitrage opportunity is available? What trades would you make?

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Stock Current Market Price HPQ SHLD GE $34 $42 $16