Under the APT, the expected risk/return relationship in a market is kept in balance by arbitrageurs. A stock has a return of 10%. Under the APT, given its risk exposure, the expected return is 15%. What would an arbitrageur do in this situation?

Select one:

A.

Buy the stock as price is too low. Buying increases price, reducing return.

B.

Do nothing---without risk free rate cannot tell.

C.

Buy the stock as price is too low. Buying increases price, increasing return.

D.

Sell the stock as the price is too high. Selling reduces price, increasing return.