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:

Fundamental Attribution Error

The tendency to overemphasize personality traits and underestimate situational factors when explaining another individual's behavior.

Self-fulfilling Prophecy

A belief or expectation that causes itself to become true due to positive feedback between belief and behavior.

Halo Effect

A cognitive bias where the perception of one positive characteristic of a person or thing influences the overall perception of that entity in a disproportionately positive way.

Primacy Effect

Refers to the tendency for the first items presented in a series to be remembered more easily or to be more influential than subsequent items.