Question: can you explain every step, and right out the equations. Chapter 3 Review Problems Arbitrage and the Law of One Price An exchange traded fund

can you explain every step, and right out the equations.can you explain every step, and right out the equations. Chapter 3

Chapter 3 Review Problems Arbitrage and the Law of One Price 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 Apple Computer (AAPL), five shares of General Electric (GE), and one share of Amazon (AMZN). Suppose the current market price of each individual stock are shown below: Market Stock Current Price Amazon (AMZN) $ 836.52 $ 121.85 Apple Computer (AAPL) $ 30.37 General Electric (GE) Suppose that the ETF is selling for $1,233.79. You should a. do nothing because the ETF is appropriately priced there is no arbitrage opportunity. b. buy the ETF, sell two shares of AAPL, sell five shares of GE, and sell one share of AMZN. c. buy the ETF, sell three shares of AAPL, sell five shares of GE, and sell one share of AMZN. d. sell the ETF, buy two shares of AAPL, buy five shares of GE, and buy one share of AMZN. e. sell the ETF, buy two shares of AAPL, buy five shares of GE, and sell one share of AMZN

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!