Assume That There Are Two Investments Similar in All Respects

question 317

Multiple Choice

Assume that there are two investments similar in all respects, but Investment X has a higher rate of return than does Investment Y. As a result of the arbitrage process, the price of Investment

• A) X will fall and its rate of return will fall.
• B) Y will rise and its rate of return will fall.
• C) X will fall and its rate of return will rise.
• D) Y will fall and its rate of return will rise.

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Definitions:

Minority Shares

Shares of stock that represent less than half of the control of a company, often held by investors who have limited influence on corporate decisions.

Business Judgment Rule

A legal principle that protects corporate directors' decision-making from judicial review as long as the decisions are made in good faith.

Shareholder's Demand

A formal request by a shareholder, typically for corporate information or to take specific actions, under legal rights.

Court Piercing

A legal action where a court disregards the corporate entity and holds its owners personally liable for corporate debts or misconduct.