If the Yield on Mortgage-Backed Securities Was Abnormally High Compared

question 44

Multiple Choice

If the yield on mortgage-backed securities was abnormally high compared to Treasury bonds, a hedge fund pursuing a relative value strategy would

• A)short sell the Treasury bonds and short sell the mortgage-backed securities.
• B)short sell the Treasury bonds and buy the mortgage-backed securities.
• C)buy the Treasury bonds and buy the mortgage-backed securities.
• D)buy the Treasury bonds and short sell the mortgage-backed securities.

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Definitions:

Mutually Exclusive Projects

Situations where the acceptance of one project results in the rejection of another project due to constraints such as budget or resources.

Economic Resource

Assets or inputs that can be used in the production or offering of goods and services that have economic value.

Fiscal Year

A one-year period used for financial reporting and budgeting that may not align with the calendar year.