Question 1

Use the table for the question(s)below. 
-Consider an ETF that is made up of one share each of IBM,MRK,and C.The minimum bid price for this ETF in a normal market is closest to:

Accepted Answer

A)Here we use the Bid prices Value = 123.20 + 36.50 + 3.15 = 162.85

Question 2

Which of the following statements is FALSE?

Accepted Answer

The statement in B is incorrect because it describes the bid-ask spread inaccurately. When you buy a security, you pay the higher ask price, and when you sell, you receive the lower bid price. The bid-ask spread is the difference between these two prices, not the other way around.

Question 3

Use the table for the question(s)below. 
-Consider an ETF that is made up of one share each of IBM,MRK,and C.The current quote for this ETF currently is $162.75 (bid)$162.80 (ask).What should you do?

Accepted Answer

The answer of Use the table for the question(s)below. 
-Consider...

Question 4

Consider an ETF that is made up of one share each of IBM,MRK,and C.The minimum ask price for this ETF in a normal market is closest to:

Accepted Answer

B)Here we use the ask prices Value = 123.25 + 36.55 + 3.20 = 163

Question 5

In a normal market with transactions costs,is it possible for different investors to place different values on an investment opportunity? Are there any limits on the amount that their values can differ?

Accepted Answer

The answer of In a normal market with transactions costs,is...

Question 6

Consider an ETF that is made up of one share each of IBM,MRK,and C.The current quote for this ETF currently is $162.85 (bid)$163.00 (ask).What should you do?

Accepted Answer

The answer of Consider an ETF that is made up...

Question 7

Use the table for the question(s)below. 
-Suppose that security C had a risk premium of 30%,describe what arbitrage opportunity exists and how you would exploit it.

Accepted Answer

The answer of Use the table for the question(s)below. 
-Suppose...

Question 8

Consider a bond that pays $1000 in one year.Suppose that the market interest rate for savings is 8%,but the interest rate for borrowing is 10%.The price range that this bond must trade in a normal market if no arbitrage opportunities exist is closest to:

Accepted Answer

B)VB @ 8% = 1000/1.08 = $926 VB @ 10% = 1000/1.10 = $909 so range is 909 to 926

Question 9

Consider an ETF that is made up of one share each of IBM,MRK,and C.The current quote for this ETF currently is 163.15 (bid)$163.20 (ask).What should you do?

Accepted Answer

The answer of Consider an ETF that is made up...

Quiz 3: Financial Decision Making and the Law of One Price

Use the table for the question(s) below. -Consider an ETF that is made up of one share each of IBM,MRK,and C.The minimum bid price for this ETF in a normal market is closest to: