For Price Discrimination to Work, Arbitrage Opportunities Must Be Unlimited

question 55

True/False

For price discrimination to work, arbitrage opportunities must be unlimited.

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Definitions:

Internal Rate

Often referred to as the Internal Rate of Return (IRR), it is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Company's Rate

The rate at which a company borrows or lends money, often specific to its cost of capital or interest rates.

Required Rate

The minimum rate of return on an investment that investors demand, taking into account the investment’s risk level compared to the risk-free rate of return.

Annual Cash Flows

The total amount of money being transferred into and out of a business, captured on a yearly basis, and used to assess the financial health of the entity.