To Take Advantage of an Arbitrage Opportunity, an Investor WouldI)

question 53

Multiple Choice

To take advantage of an arbitrage opportunity, an investor wouldI) construct a zero-investment portfolio that will yield a sure profit.II) construct a zero-beta-investment portfolio that will yield a sure profit.III) make simultaneous trades in two markets without any net investment.IV) short sell the asset in the low-priced market and buy it in the high-priced market.

• A) I and IV
• B) I and III
• C) II and III
• D) I, III, and IV
• E) II, III, and IV

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Definitions:

Valueless

Lacking in value, importance, or utility; having no worth or significance.

Constant Value

A value that remains unchanged over a period of time, despite external factors or conditions that might otherwise cause variation.

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