Which of the Following Statements Regarding Arbitrage and Security Prices

question 74

Multiple Choice

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

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

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