The possibility of arbitrage arises when ________.

A) there is no consensus among investors regarding the future direction of the market, and thus trades are made arbitrarily
B) mispricing among securities creates opportunities for riskless profits
C) two identically risky securities carry the same expected returns
D) investors do not diversify

Arbitrage

The simultaneous purchase and sale of an asset in different markets to exploit price differences for a risk-free profit.

Mispricing

The occurrence of an asset being priced either higher or lower than its intrinsic value due to market inefficiencies or errors in analysis.

Riskless Profits

Profits made from trading or investing that are deemed to have no risk; often considered unrealistic in practical financial markets.