Consider Two Securities,A & B

question 86

Multiple Choice

Consider two securities,A & B.Suppose a third security,C,has the same cash flows as A and B combined.Given this information about securities A,B,& C,which of the following statements is INCORRECT?

• A)If the total price of A and B is cheaper than the price of C,then we could make a profit selling A and B and buying C.
• B)Price(C)= Price(A)+ Price(B).
• C)Because security C is equivalent to the portfolio of A and B,by the law of one price they must have the same price.
• D)The relationship known as value additivity says that the value of a portfolio is equal to the sum of the values of its parts.

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Definitions:

Competitive Business

A business that actively strives for a superior position in the marketplace through strategies like innovation, quality improvement, and customer service enhancement.

Challenges of Growth

The difficulties and obstacles that a company or organization faces as it expands or increases in size.

Oligopolistic

Pertaining to a market structure where a few firms dominate the industry, often leading to limited competition.

Perfectly Competitive

A theoretical market structure characterized by infinite buyers and sellers, homogeneous products, and free entry and exit, leading to optimal output levels and no individual control over prices.