The Law of One Price Posits That Ability to Arbitrage

question 2

Multiple Choice

The law of one price posits that ability to arbitrage would force prices of identical goods to trade at equal prices. However, empirical evidence suggests that __________ are often mispriced.

• A) Siamese twin companies
• B) equity carve-outs
• C) closed-end funds
• D) None of the options are correct.
• E) All of the options are correct.

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Definitions:

Multiplier

A factor by which an initial change in spending will alter total economic output by a greater amount.

National Debt

The cumulative amount of money that a government owes to creditors, both domestic and foreign, as a result of borrowing to cover budget deficits.

National Debt

National debt is the total amount of money that a country's government has borrowed, through various means, including foreign governments and domestic investors.

Multiplier

In macroeconomics, a factor that quantifies the effect of increased investment or spending in an economy, typically leading to a proportionally greater increase in income or output.