Which of the Following Statements Regarding Arbitrage and Security Prices

question 57

Multiple Choice

Which of the following statements regarding arbitrage and security prices is INCORRECT?

• A) We call the price of a security in a normal market the no-arbitrage price for the security.
• B) In financial markets it is possible to sell a security you do not own by doing a short sale.
• C) When a bond is underpriced, the arbitrage strategy involves selling the bond and investing some of the proceeds.
• D) The general formula for the no-arbitrage price of a security is Price(security) = PV (all cash flows paid by the security).

---

Definitions:

Birth Rates

The number of live births per thousand of population per year.

Economic Growth

An increase in the amount of goods and services produced per head of the population over a period of time.

Population Density

The number of individuals living in a given area, typically expressed as persons per square kilometer or square mile.

Fertility Rates

The average number of children that would be born per woman over her lifetime within a certain population.