Which of the Following Statements Regarding the Law of One

question 6

Multiple Choice

Which of the following statements regarding the Law of One Price is INCORRECT?

• A) At any point in time, the price of two equivalent goods trading in different competitive markets will be the same.
• B) An important property of the Law of One Price is that it holds even in markets where arbitrage is not possible.
• C) If equivalent goods or securities trade simultaneously in different competitive markets, then they will trade for the same price in both markets.
• D) One useful consequence of the Law of One Price is that when evaluating costs and benefits to compute a net present value (NPV), we can use any competitive price to determine a cash value, without checking the price in all possible markets.

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Definitions:

Net Operating Income

A measure of profitability that calculates how much revenue exceeds the operating expenses of a company, excluding taxes and interest.

Average Operating Assets

The average value of the assets that are used in the normal course of business operations, calculated over a specific period.

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment, expressed as a percentage of the investment's gain relative to its cost.

Minimum Required Rate

The lowest acceptable rate of return on an investment, often used in capital budgeting to assess the feasibility of projects.