An Arbitrage Opportunity Is Any Situation in Which

question 18

Multiple Choice

An arbitrage opportunity is any situation in which

• A) Your estimated probability of a stock appreciating in price is three times that of the stock falling in price, and you hold a long position in the stock.
• B) An insider trading on privileged information is able to make supernormal profits.
• C) You are able to generate superior risk-adjusted returns to the market.
• D) You can construct a strategy whose cash flows are non-negative at all times with at least one positive cash flow at one or more points in time.

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Definitions:

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Cloture is a legislative procedure used to end a debate and proceed to vote, most notably used in the United States Senate to overcome a filibuster.

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One of the two chambers of the United States Congress, it is comprised of representatives from each state who are elected to serve six-year terms.