To take advantage of an arbitrage opportunity, an investor would
I) construct a zero-investment portfolio that will yield a sure profit.
II) construct a zero-beta-investment portfolio that will yield a sure profit.
III) make simultaneous trades in two markets without any net investment.
IV) short sell the asset in the low-priced market and buy it in the high-priced market.
A. I and IV
B. I and III
C. II and III
D. I, III, and IV
E. II, III, and IV
B. I and III
Only I and III are correct. II is incorrect because the beta of the portfolio does not need to be zero. IV is incorrect because the opposite is true.
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Fill in the blank(s) with correct word
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a. True b. False
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