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

question 38

Multiple Choice

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

• A) short sell the Treasury and short sell the mortgage-backed securities
• B) short sell the Treasury and buy the mortgage-backed securities
• C) buy the Treasury and buy the mortgage-backed securities
• D) buy the Treasury and short sell the mortgage-backed securities
• E) C only since short sales are prohibited

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Definitions:

Millimeters

A unit of length in the metric system, equal to one thousandth of a meter.

Prefrontal Cortex

The front part of the frontal lobe of the brain, involved in complex behaviors such as planning, decision making, and moderating social behavior.

Reasoning

The process of thinking about something in a logical way in order to form a conclusion or judgment.

Decision Making

The cognitive process of selecting a course of action from among multiple alternatives.