Which of the Following Questions Regarding Risk Arbitrage Is False

question 25

Multiple Choice

Which of the following questions regarding risk arbitrage is false?

• A) Once a tender offer is announced, the uncertainty about whether the takeover will succeed reduces the volatility of the stock price. This uncertainty creates an opportunity for investors to speculate on the outcome of the deal without bearing the risk of volatility.
• B) Traders known as risk-arbitrageurs, who believe that they can predict the outcome of a deal, take positions based on their beliefs.
• C) A potential profit arises from the difference between the target's stock price and the implied offer price, and is referred to as the merger-arbitrage spread.
• D) However, it is not a true arbitrage opportunity because there is a risk that the deal will not go through. If the takeover did not ultimately succeed, the risk-arbitrageur would eventually have to unwind his position at whatever market prices prevailed.

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Definitions:

Social Capital

The networks of relationships among people who live and work in a particular society, enabling that society to function effectively.

Financial

Related to the management, investment, or collection of money, often within a business or organization.

Structural

Related to or involving the physical makeup or configuration of something, often referring to buildings, bridges, or other edifices.

Social Capital

The interconnectedness of people within a specific community, enabling the community to work effectively.