Arbitrage Is Based on the Idea That ________

question 70

Multiple Choice

Arbitrage is based on the idea that ________.

• A) assets with identical risks must have the same expected rate of return
• B) securities with similar risk should sell at different prices
• C) the expected returns from equally risky assets are different
• D) markets are perfectly efficient

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Definitions:

Claim

A demand for something as due, often referring to a right to payment or other benefits.

Interest Rate Collar

A financial derivative strategy used to hedge interest rate movements by setting upper and lower limits on interest payments.

Variable Rate Loan

A loan where the interest rate can change over time, based on an underlying benchmark or index.

Floor Rates

The minimum interest rate agreed upon in a financial contract, below which the rate cannot fall.