- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 4. Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
- Subject 1. Arbitrage and Replication
CFA Practice Question
Which of the following is LEAST LIKELY to be a result of arbitrage?
B. Law of one price
C. Earning a return in excess of return appropriate for the assumed risk
A. More efficient markets
B. Law of one price
C. Earning a return in excess of return appropriate for the assumed risk
Correct Answer: C
Arbitrage results in more efficient markets and it forces equivalent assets to have a single price. Earning a return in excess of return appropriate for the assumed risk is known as abnormal return and it has nothing to do with the arbitrage. Arbitrage results in riskless profit with no capital requirement.
User Contributed Comments 1
| User | Comment |
|---|---|
| cgbobmpo | So you mean, C is the correct answer. Admin: corrected. |