An Investor Owns Bond #1, Which Has a Rate of Return

question 246

Multiple Choice

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk.By selling bond #1 and buying bond #2 to earn a higher return, the investor is engaging in

• A)pooling.
• B)arbitrage.
• C)diversification.
• D)time preference.

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