A professional who searches for mispriced securities in specific areas such as merger-target stocks,rather than one who seeks strict (risk-free)arbitrage opportunities is engaged in
A)pure arbitrage.
B)risk arbitrage.
C)option arbitrage.
D)equilibrium arbitrage.
E)none of the above.

Question

Quizplus · Accepted Answer

The professional who searches for mispriced securities in specific areas such as merger-target stocks is engaged in risk arbitrage. Risk arbitrageurs seek to profit from the price discrepancies that occur during a merger or acquisition, where the target company's stock price may not fully reflect the value of the deal. This type of arbitrage involves taking on some degree of risk, as the deal may not ultimately go through or may be renegotiated, leading to potential losses. Pure arbitrage, option arbitrage, and equilibrium arbitrage do not involve searching for mispriced securities in specific areas such as merger-target stocks, making them incorrect choices.

A Professional Who Searches for Mispriced Securities in Specific Areas