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

question 41

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 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.
• E)None of the options

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Definitions:

Applied Factory Overhead

Indirect costs related to manufacturing, allocated to goods based on a predetermined rate.

Direct Labor

The wages or expenses directly associated with the manufacturing of products or delivery of services.

Continuous Process

A production process that is non-stop and operates continuously over long periods.

Applied Factory Overhead

The portion of overhead costs that are allocated to produced goods based on a predetermined rate or method.