Explain Why the Law of One Price May Best Be

question 107

Essay

Explain why the law of one price may best be applied to financial assets.

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Definitions:

Periodic Rate

Periodic rate is the interest rate applied to a financial product over a specific period, which could be daily, monthly, or quarterly, rather than annually.

Quarterly Payments

Payments that are made four times a year, usually for loans or investments, corresponding to each quarter of the year.

Compounded Semi-annually

Interest on an investment or loan is calculated and added to the principal two times a year.

Government of Canada Bond

A Government of Canada Bond is a secure investment issued by the Canadian government, which promises to pay the holder a fixed rate of interest over a specific period of time.