Which of the following is an example of an arbitrage opportunity? A) You have found an...
Which of the following is an example of an arbitrage opportunity?
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A) You have found an investment that is guaranteed to offer you a 100% return on your investment in one year. |
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B) You are able to borrow money today for one year at 3% and simultaneously invest the proceeds in a project that is guaranteed to return 15% at the end of the year. There are no transaction costs associated with either the loan or the investment. |
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C) You can play a game in which you will win $100,000 if you draw any card but an ace out of a 52-card deck. If you draw an ace, however, you pay only $1.00. |
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D) None of the above is an arbitrage opportunity. |
Homework Answers
The correct answer is A
Explanation:- An arbitrage opportunity refers to the possibility of deriving profits without any risk. That is, an arbitrage opportunity represents the production of something out of nothing.
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