Use the Table for the Question(s) Below

question 48

Multiple Choice

Use the table for the question(s) below.

-Which of the following statements is false?

• A) No arbitrage opportunities will exist until the underlying prices diverge by more than the amount of the transaction costs.
• B) Because you will generally pay a slightly lower price when you buy a security (the ask price) than you receive when you sell (the bid price) you will pay the bid-ask spread.
• C) The price of a security should equal the present value of its cash flows, up to the transaction costs of trading the security and the cash flows.
• D) In most markets, you must pay transactions costs to trade securities.

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Definitions:

Cost Model

An accounting approach that measures an asset based on its historical cost minus any accumulated depreciation and impairment losses.

Impairment

Reduction in the recoverable value of an asset below its carrying amount.

Recoverable Amount

The higher value between an asset's fair market value less costs to sell and its value in use.