An investor will take as large a position as possible when an equilibrium-price relationship is violated. This is an example of
A) a dominance argument.
B) the mean-variance efficiency frontier.
C) a risk-free arbitrage.
D) the capital asset pricing model.

Question

Quizplus · Accepted Answer

This is an example of a risk-free arbitrage, where an investor takes advantage of a price discrepancy without risk to make a profit. Arbitrage opportunities occur when an asset is priced differently in two markets, and investors can buy low in one market and sell high in another, capturing the price difference as profit. This does not involve dominance arguments, the mean-variance efficiency frontier, or the capital asset pricing model, which are related to other aspects of finance and investment theory.

An Investor Will Take as Large a Position as Possible