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

question 33

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 above

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Definitions:

Acquisition

The act of obtaining control of another corporation, either through purchase or merger.

Diversification

The strategy of spreading investments across various asset classes or sectors to reduce risk.

Merger

A strategic business action where two entities consolidate their assets, operations, and management with the aim of fostering growth or competitive advantage.