Suppose the Game Is Infinitely Repeated, and the Interest Rate

question 34

Multiple Choice

Suppose the game is infinitely repeated, and the interest rate is 5%.Both firms agree to charge a high price, provided no player has charged in low price in the past.If both firms stick to this agreement, then the present value of Firm B's payoffs are:

• A)105.
• B)190.
• C)210.
• D)525.

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Definitions:

Security Market Line

A line that represents the relationship between the expected return of a security and its systematic risk, illustrating the risk-return trade-off in the capital asset pricing model (CAPM).

Portfolio Weight

The proportion of a specific asset within an investment portfolio relative to the total asset value of the portfolio.

Beta

A measure of a stock's volatility in comparison to the overall market, indicating its relative risk.