EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
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Chapter 3, Problem 16P
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 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?
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Chapter 3 Solutions
EBK CORPORATE FINANCE
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
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