Edwin, an investor, identifies an arbitraging opportunity on the shares of Tristan Group [buying in market A and selling in market B] and he can afford to trade 1,000 shares. The price levels and the transaction costs are as follows: Market A $35.00 per share Market B $35.50 per share Commission charges + Other Costs $25.00 per batch of 100 shares Based solely on the information given, which of the following observations is most likely true of the market? a. The market is highly inefficient because the investor can earn $500 by arbitraging. b. The market is inefficient because the investor can earn a profit by arbitraging. c. The market is efficient within the bounds of arbitrage as the investor can earn only $250 by arbitraging. d. It cannot be determined from the data given whether the market is efficient or inefficient. e. The market is efficient because the investor cannot earn a profit by arbitraging.
35. Edwin, an investor, identifies an arbitraging opportunity on the shares of Tristan Group [buying in market A and selling in market B] and he can afford to trade 1,000 shares. The price levels and the transaction costs are as follows:
|
Market A |
$35.00 per share |
|
Market B |
$35.50 per share |
|
Commission charges + Other Costs |
$25.00 per batch of 100 shares |
Based solely on the information given, which of the following observations is most likely true of the market?
a. The market is highly inefficient because the investor can earn $500 by arbitraging.
b. The market is inefficient because the investor can earn a profit by arbitraging.
c. The
d. It cannot be determined from the data given whether the market is efficient or inefficient.
e. The market is efficient because the investor cannot earn a profit by arbitraging.
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