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NEW QUESTION: 1
When reviewing a disaster recovery plan (DRP) an IS auditor should examine the:
A. Fire-fighting equipment
B. Uninterruptible power supply (UPS)
C. Access to the computer site by the backup staff
D. Offsite data file storage
Answer: D

NEW QUESTION: 2

A. Option B
B. Option D
C. Option A
D. Option C
Answer: C

NEW QUESTION: 3
You can enter a derivative contract that will pay $100 at the end of a year if the price of corn exceeds
$ 3 per bushel, or $50 if it is equal to $3 per bushel or lower. The probability that corn will exceed $3 by the end of one year is 50%. The current price of the contract is $60, and interest is 5% per year. What is the optimal strategy?
A. Buy $3 per bushel worth of corn futures.
B. Invest $60 at 5% until the end of the year.
C. Enter into the derivative contract for a cost of $60.
Answer: C
Explanation:
Enter into the derivative contract for a cost of $60, for the expected payoff is 0.50 * $100 +
0 .50 * $50 = $75. That is a 25% return on your investment in one year, greater than the 5% that could be made by investing the $60 at interest. This is an example of the investment consequences of inconsistent probabilities. The present value of the contract should be $75/1.05 = $71.43. Thus, an arbitrage opportunity is present. On an expected value basis, you can buy an asset worth $71.43 for only $60.