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1. Your friend tells you about an arbitrage opportunity. You can buy stock for $25 in Tokyo and sell it for $25.05 in New York. You judge the opportunity cost of lost interest to be mini-mal (no more than $10). Based on previous trading, you expect it will cost you $0.02 per share to buy in Tokyo and $0.02 per share to sell in New York. There are additional expenses of $0.03 per share for such things as transfer and communications costs. You will pay someone $26 to handle the transac-tions for you. How many shares must you sell to realize an "arbitrage" opportunity that will actually yield a riskless profit?
a. You cannot realize an arbitrage profit because variable costs are greater than the per share revenue from buying and selling shares.
b. To realize a riskless arbitrage you should plan on selling enough shares to overcome lost interest and handling costs.
c. To realize a riskless arbitrage you should plan on selling enough shares to cover all variable costs.
d. none of these
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