The stock of Boulware Metals is trading at $43. Its intrinsic value is $40. The price of Dunn Aerospace is $50. Its intrinsic value is $52. According to behavioral finance, which of the following scenarios will occur?

A) Investors will not exploit the mispricing because of risk and transactions costs.

B) Investors will short Boulware and go long Dunn.

C) Investors will go long Dunn but not short Boulware.

D) Investors will short Boulware but not go long Dunn.

Behavioral finance suggests that securities may become mispriced in the market. The proponents of the efficient markets hypothesis state that rational investors will exploit any mispricing that occurs, thus correcting the mispricing. How would the proponents of behavioral finance respond?

A) The proponents of behavioral finance have not yet formulated a response.

B) That the mispricing can persist.

C) That although mispricing will eventually be corrected, there is a substantial delay before it occurs.

D) That the mispricing will worsen, especially for stocks that are undervalued.

According to behavioral finance, security prices can deviate from their fundamental value. Which of the following transactions is most closely related to the response from the proponents of the efficient markets hypothesis to the behavioral finance claim?

A) An enhanced index trade.

B) A pair trade.

C) A core satellite trade.

D) A portable alpha trade.