The process of arbitrage:
A) raises or lowers the average expected rate of return of a financial asset with a given level of risk.
B) vertically shifts the Security Market Line.
C) moves a financial asset along the Security Market Line.
D) pushes all financial assets to the same average expected rate of return and risk level.

Question

Quizplus · Accepted Answer

Arbitrage involves buying and selling assets to exploit price differences, which can affect the expected rate of return for a given risk level, thus impacting the average expected rate of return of a financial asset.

The Process of Arbitrage