Which of the following is an arbitrage opportunity?

1. Suppose a foundation invested 1000 dollars in the stock market in 1870. Accounting for inflation, what would

have been the dollar value of this investment in September 2019?

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A. 2850 dollars. B. 7660 dollars. C. 19,500 dollars. D. 19,500,000 dollars.

2. Which of the following is an arbitrage opportunity?

A. Two stocks, one has expected return of 5%, the other 4%. B. The bank offers you a loan at 5% interest and a savings account that pays 4% interest. C. The bank offers you a loan at 4% interest and a savings account that pays 5% interest. D. For every $1 you deposit today, the bank offers to pay you $1 in a year if the economy is bad and $2 in a year if the economy is good.

3. Which of the following offers would a risk-averse investor find most valuable?

A. A coin toss that pays $1.50 on heads and $-0.50 on tails. B. A financial instrument that pays $0.75 if the investor still has a job tomorrow and $1.25 if the investor is unemployed. There is a 50% chance that the investor loses their job tomorrow. C. A coin toss that pays $2 on heads and $-2 on tails. D. A coin toss that pays $1 on heads and $-1 on tails.

4. Which of the following is not a real asset?

A. Human capital accumulated taking courses at NYU Stern. B. NYU classes website. C. A dollar bill. D. A gold coin.

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