Which of the Following Statements Regarding Risk Arbitrage Is False

question 1

Multiple Choice

Which of the following statements 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) It is not a true arbitrage opportunity if there is a risk that the deal will not go through. If the takeover does not ultimately succeed, the risk-arbitrageur will eventually have to unwind his position at whatever market prices prevailed.

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Definitions:

Majority Voting

A decision-making process where the option that receives more than half of the votes is chosen.

Economic Efficiency

A level of performance in which no more goods or services can be produced without increasing the amount of inputs or resources used, indicating an optimal allocation of resources.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be consumed by many people at once without depleting the supply.

Paired-Choice Voting

A voting system in which voters choose between pairs of candidates or options in a series of rounds to identify a preferred option or candidate.