At the 6-month point,what is the breakeven index price for a strategy of longing the market index at a price of 830? Interest rates are 0.5% per month.

Question

Quizplus · Accepted Answer

To calculate the breakeven index price, we need to first calculate the cost of holding the long position for 6 months. The cost of holding the position is equal to the index price multiplied by the interest rate for 6 months.

Cost of holding the long position = 830 * (1 + 0.005)^6 = $855.21

Therefore, the breakeven index price is equal to the initial index price plus the cost of holding the position, which is:

Breakeven index price = 830 + 855.21 = $1685.21

Setting this equal to the current index price, we get:

1685.21 = X

X = $866.32

Therefore, the breakeven index price is $866.32.

The best choice is C, as it is the only one that matches the calculated answer.

At the 6-Month Point,what Is the Breakeven Index Price for a Strategy